Do central banks need a new approach to cash management

By : Cleopatra Mavredis

May 31, 2018 12:00 PM

Where cash management is concerned, the traditional focus has been on actions driven by financial institutions (FIs).


As FIs seek to balance business efficiency with consumer availability, some of the industry’s frequently asked questions center on how FIs can, and should, forecast demand for cash with maximum accuracy, and the most effective ways to monitor and manage the supply of cash to ATMs and branches.


But it’s time to start looking at the bigger picture. More specifically, it’s time to look at central banks, and ask whether they need to take a new approach to managing the supply of cash, in partnership with FIs and other key stakeholders in the cash distribution cycle.


The ultimate authority


The first fact that must be recognized is that national or central banks are the primary current governing body as far as the supply and management of cash in an economy is concerned. They are the highest funding source and control the amount of cash in circulation in any given time.


Central banks must take on the responsibility of forecasting cash requirements and printing the required amount of currency to meet demand, whether it comes from banks, retailers, consumers or any other cash requiring entity.


These central institutions also face some unique challenges that can make effective cash management very difficult, chief among which is a one-year forecast period. Essentially, they must decide, 12 months in advance, how much cash is required in circulation to meet consumer demand in sometimes a very fluctuating political environment.


Furthermore, it's important to remember that central banks often have the same concerns and priorities as their commercial counterparts, one of the most pressing of which is cutting costs.


There are solutions available that can help central banks to negotiate these challenges, but is it time to look for an entirely new approach?


What could central banks be doing differently?


In large part, central banks are not imposing any concrete regulations on FIs that compel them to modernize their cash networks.


There could be some valuable benefits to be gained for all stakeholders in the financial system, all the way down to individual consumers, if central banks can find a co-operative way to transfer more responsibility to FIs. How can central banks work with service providers - those on the front lines of supplying cash and meeting everyday demand - to modernize the broader cash management system and increase efficiency?


Action on this front has been relatively slow, but one region that does appear to be showing some progress is the Middle East, where central banks are starting to place more of an emphasis on concepts such as automation. Some central banking institutions in this part of the world are putting more pressure on retail banks to look into automated infrastructure, which could drive efficiency and accuracy in areas such as demand forecasting.


After all, we are seeing automation become increasingly common in central banks' manual functions, such as physically transporting batches of printed cash for delivery, so the next logical step is to extend this concept to underlying technological processes and infrastructure.


Another strategy that could deliver results is the movement of cash operations downstream, from a central bank to a cash center, which would typically be managed by a cash-in-transit operator. One of the repercussions of this approach would be a requirement for FIs to improve their cash redistribution, possibly with the help of tools such as cash recyclers.


Whatever the particular methods might be, it is becoming increasingly clear that central banks need to start looking for new ways to optimize cash management, in partnership with the FIs and other businesses invested in keeping the financial services industry running smoothly.


Finding an approach that works for all stakeholders is likely to be a big challenge, but it could deliver equally sizeable results.

Cleopatra Mavredis

NCR Europe Self-Service Channel Management

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Cleopatra Mavredis is NCR’s Global Marketing Manager for Channel solutions and has more than 20+ years of experience in the ATM industry. NCR’s channel solution portfolio is comprised of APTRA Vision, Inetco Insight and OptiSuite solutions.