One important objective of the Single Euro Payments Area () initiative should be to encourage a shift from cash to electronic payments. Despite the fact that cash accounts for a falling proportion of retail payments, it is in general still the predominant payment method in Europe and the demand for cash continues to grow. Studies over the years have shown that the social cost of cash remains considerable. The believes that actions by all stakeholders within the euro area could contribute towards reducing the high cost of processing and handling of cash. In 2010, the and the European Security Transport Association (ESTA) established a joint task force to identify best practice principles and, where possible, develop recommendations on how to further improve deploying and re-circulating cash. The considerations of this task force are reflected in the document 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models' (see link below), which was published on the Website on 15 April 2013 for a three-month public consultation. For details on how to participate in the consultation, refer to the 'related links' included at the end of this blog. All stakeholders are invited to provide feedback by 14 July 2013.
Cash remains popular - and costly for society
Today, consumers continue to make significant use of cash - it is real, instantaneous and perceived to be free. In reality however, cash payments are costly for society. In October 2012, the European Central Bank (ECB) released the report 'The Social and Private Costs of Retail Payment Instruments' (see link below). The objective of this study is "to enhance the general understanding of the social and private costs of different retail payment instruments from a European perspective, with the aim of helping policy-makers, banks and retailers promote efficient payments." The ECB report analyses the social and private costs of making retail payments in 13 European countries and discovers that they are substantial, amounting to around 45 billion euros, or almost 1 percent of their combined gross domestic product. Due to the relatively high usage of cash, it accounts for nearly half of the total social costs.
introduces the paper 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models'
The document 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models' aims to create awareness among participants in the commercial cash cycles established at national level across the countries of how to improve existing processes and reduce the overall cost of cash. The document addresses, among other things, the following aspects:
Balance sheet relief (BSR) mechanism: this mechanism describes an arrangement between a national central bank (NCB) and certain commercial cash cycle participants to hold currency at selected locations (usually secure centralised vaults), in the name of and to the value of the NCB. (Participants in the commercial cash cycle are parties other than NCBs and consumers taking part in the cash cycle: e.g. payment service providers, cash-in-transit companies and retailers). Implementation of the BSR mechanism supports wholesale cash re-circulation, reduces the operational involvement of the NCB and, consequently, decreases the cost of cash inventories in a cash cycle. The BSR mechanism may therefore prove to be a valuable component for commercial cash cycle participants to consider when evaluating their existing cycles.
Different models of cooperation between NCBs and commercial cash cycle participants: the different models currently in place can be distinguished based on the different levels of responsibility of the actors cooperating in the model; i.e. the relevant NCB and the commercial cash cycle participants. The document describes the various cooperation structures that can be formed by these participants and identifies potential improvements. A future model should be able to respond to a potential scenario where the NCB decides to reduce its branch network, services and operating hours. The paper does not recommend any specific model. It suggests however that the 'partial delegation' model, the 'total delegation' model and the 'partial transfer' model appear to offer a combination of the elements required to create the most efficient cash cycle model for the future. These three models provide logistical cost optimisation opportunities for the NCB as well as the commercial cash cycle participants and allow flexibility to develop customised cash services. In addition, they facilitate the direct exchange of excess cash among the different participants in the commercial cash cycle. Finally, these models also achieve BSR for the commercial cash cycle participants involved. The stresses that irrespective of the cash model (or combination of models) chosen, security of cash remains a key consideration when reviewing existing cash cycles.
The aim of the public consultation is to ensure that the document correctly describes existing practices established between commercial cash cycle participants and NCBs and to enhance the content, where possible. Respondents to the consultation are invited to provide feedback on the document, in particular on the following topics:
Factors impacting the cash distribution landscape in (chapter 2): section 2.3 of chapter 2 describes regulatory action including ECB decisions and legislation impacting the cash cycle. These regulatory actions refer to the authentication of euro banknotes and coins, value date rules and cross border transport of euro cash by road. Respondents to the consultation are invited to indicate whether, in their view, there is any area where more consistency between decisions taken by the ECB on the one hand and the legislator, on the other, would be required to foster greater efficiency in the cash handling chain.
BSR mechanism (chapter 3): does the paper overlook any factor(s) relevant to the BSR mechanism? Respondents to the consultation are invited to elaborate on how the addition of one (or more) factor(s) would contribute towards the stated objective; i.e. stimulating wholesale cash re-circulation, reducing the operational involvement of the NCB and, consequently, decreasing the cost of cash inventories in a cash cycle.
Existing cash cycle models (chapter 4): are there any other existing models that should be included in the analysis? Respondents to the consultation, who are of the view that the paper should address an existing cash cycle model not currently included, are invited to describe such an additional model and substantiate why it should be taken into consideration.
Key considerations when selecting an efficient cash cycle model (chapter 5) and possible future cash cycle models (chapter 6): are there any other considerations relevant to selecting a cash cycle model and / or are there possible additional future models that should be included in the analysis? Respondents to the consultation, who are of this view, are invited to describe such additional considerations and future models and to substantiate why these should be taken into consideration.
The document 'Improving the Efficiency of the Handling of Cash - Cash Cycle Models' will be updated based on the feedback received from stakeholders and a revised version will be published on the Website later this year. The looks forward to continuing the dialogue with all stakeholders on the best way forward to boost the efficiency and, consequently, reduce the high cost of processing and handling of cash in .
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