An industry forum headed by the Reserve Bank is looking to learn from cash shortages during Cyclone Gabrielle
Cash availability is the next infrastructure failing on the post-cyclone dissection table, with greater resilience and offline digital currency on the central bank's agenda.
Damage to telco and electricity networks was obvious for all, with communications in and out of badly affected regions near impossible. Elon Musk’s Starlink has been tapped and law changes to prevent blackouts have been picked back up.
A less obvious crisis was unfolding around money – with power and the internet down, Eftpos was out of the picture for much of Hawkes Bay and Tairāwhiti.
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In that situation, cash is king, but as demand spiked, availability was hit by many of the same problems as electronic payments coupled with low inventory levels.
According to the Reserve Bank's financial stability report, released last week, some coastal settlements hit by the cyclone still don't have regular ATM or banking services.
The Reserve Bank is keen to see resilience built into the cash system and is chairing an industry forum with banks and cash-in-transit providers looking at the cyclone response and lessons learned.
Reserve Bank head of money and cash Ian Woolford said the lack of resilience resulted from commercial banks’ steady retreat from cash services and sites.
Those remaining sites were generally unable to function or be accessed.
The physical movement of cash in and out, normally carried out by private firms such as ACM or Armourguard, was also impractical or impossible, adding pressure to the local cash systems.
The Reserve Bank's financial stability report said cash weaknesses would need to be addressed in a world where the likelihood of extreme weather events increases because of climate change.
It said cash availability would be an increased supervisory focus and consideration in its cash system redesign work.
This would likely include back-up power supply and improved connectivity, similar to what the telecommunications industry learned after mass outages during the weather event.
Essential business
Kiwibank general manager of retail Logan Munro said Cyclone Gabrielle presented challenges across all systems, and banks were not the only ones who faced infrastructure problems.
“Our systems are resilient and have redundancies built into our operating procedures. However, even those back-up systems are vulnerable to major infrastructure disturbances in the form of road closures, telecommunication failures and power issues.”
BNZ head of cash services Suzanne Gudgeon said the bank was working with the Reserve Bank and other stakeholders to build additional resilience around power and communication connectivity. “This includes exploring innovative options like satellite internet and alternative power solutions to ensure robust financial infrastructure during crises.”
ASB said it was in discussions with the National Emergency Management Agency, requesting banking be classified as an essential service during emergencies (not to be confused with Covid-19 essential service) to allow banks to continue to operate during emergencies.
Digital currency
The Reserve Bank’s cash redesign is happening under its Future of Money programme, which many would associate more with the possible introduction of a central bank digital currency (CBDC).
A redesign of the cash system has, however, been a key element of the programme since 2021.
The Reserve Bank has been taking a merchant-centric approach with 10 potential policy responses it wants to advance, including exploring whether banks could pay merchants who provide cash outs for their customers.
Ultimately, the Bank believes the cash system won’t be fit for purpose without new policy.
However, those already identified policy responses do little to handle the natural disaster problem.
Woolford said alongside cash having multiple, and resilient, payment options, it was even more important in a crisis.
“You can, for instance, expect us to emphasise offline capabilities for potential central bank digital currency solutions to meet connectivity challenges, whether everyday or as a disaster impact.”
Talking more about developing countries than regional New Zealand, the International Monetary Fund said internet-free access to digital currencies would be make or break for adoption.
Offline digital currencies have existed in one form or another since the 1990s when stored value cards were briefly introduced to the public in Europe before failing because of a lack of adoption.
Stored value cards contain a chip that stores currency and verifies transactions offline – the US defence force’s EagleCash is based on this technology.
China’s central bank digital currency, the digital yuan, can be used offline on Xiaomi and Vivo android smartphones using near-field communication (the same technology used for mobile payments).
