The euro cash cycle: how does it work and what is its environmental im...

The euro cash cycle: how does it work and what is its environmental impact?

30 January 24

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The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council nor the associations or its members he represents.

Cash is the most frequently used form of payment by Europeans at the point of sale. For this reason, an adequate cash cycle infrastructure must be in place. Apart from ensuring a well-functioning cash cycle, environmental aspects of euro banknotes and the cash cycle should be considered.

How does the euro cash cycle work?

Physical euro cash is circulating through the economy and is following what is called the cash cycle. National Central Banks (NCBs) are responsible for issuing banknotes and for maintaining confidence in the currency. This cash is subsequently distributed to the public by commercial banks. The transportation of cash between all actors is widely outsourced to professional cash handling companies (or cash-in-transit – ‘CIT’ companies). Euro area NCBs check the authenticity and condition of banknotes, withdrawing unfit notes from circulation. Commercial banks and other professional cash handlers check banknotes for authenticity and condition before banknotes can be put back in circulation. The Cash Efficiency Working Group (CEWG) of the EPC published in 2020 a brief public information paper aiming to provide a high-level description of the cash cycle, as well as some observations on trends and tendencies, drivers for cash usage, and related challenges that can be found here: Understanding the cash cycle.

What are the main factors contributing to the environmental impact of cash? How is it measured?

The ECB assessed the environmental impact of euro banknotes based on the European Commission’s Product Environmental Footprint (PEF) methodology. It found that the main activities contributing to the environmental footprint of euro banknotes are the powering of ATMs (37%), transportation (35%), processing activities in the distribution stage (10%), paper manufacturing (9%) and the authentication of banknotes at the point of sale (POS) in the use stage (5%).

What efforts have been made to reduce the environmental footprint of euro banknotes? 

Since 2004, efforts have been made to reduce the environmental footprint of euro banknotes. For example, the Eurosystem has imposed a landfill ban on banknote waste and implemented initiatives like the Sustainable Cotton Programme. In addition, significant efforts have been made by ATM manufacturers and credit institutions to reduce their environmental impact. Our study shows that improvements in the energy efficiency of ATMs contributed to a 35% decrease in the single overall score of the cash cycle between 2004 and 2019. Moreover, in addition to transport optimisation, other ways to reduce the environmental impact of transportation and use more sustainable fuels are being considered.

How does the environmental footprint of euro banknotes compare to other activities or products that play a part in Europeans’ daily lives?

The PEF study finds that the single overall score for the average annual value of cash payments per euro area citizen (EAC) in 2019 is 101 micropoints (μPt). This very low score is equivalent to an EAC driving a standard car for 8 km, or to 0.01% of the total environmental impact of a European’s annual consumption of activities. To further illustrate this point, it is worth comparing the results of the annual value of euro banknote payments with those of other everyday products, such as the production of a cotton T-shirt that is washed once a week for a year (comparable to driving 55 km) or the manufactured bottles of water consumed by an EAC in one year (equivalent to driving 272 km).

What are the biggest challenges in making sure cash is widely available and accepted, while reducing its environmental impact? 

Local recirculation of euro cash reduces the transportation needs for cash, and hence its environmental footprint – this recirculation should be fostered, and the CEWG has published various iterations of its Cash Recirculation Paper. Commercial banks try to reduce their environmental footprint concerning cash transactions and ATM operations, by promoting new functionalities (i.e. receiving paperless transaction receipts via e-mail), also by leveraging technology, such as recirculation ATMs and advanced forecasting tools, as the latter reduces the CIT visits per ATM and continuously reduces the carbon emission footprint.

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