A world without cash: who will be left behind?

In June, research from the Reserve Bank Te Pūtea Matua showed fewer consumers were using cash. In 2020, 71% of Kiwis used it as one way of paying. In 2019, it was 96%.

Of those who said they used less cash last year, three-quarters noted Covid-19 was a contributing factor.

Contactless payments methods, such as Paywave, were encouraged during last year’s lockdown to help stop the spread of Covid-19.

In 2020, about 36% of New Zealanders said contactless payment was their preferred way of paying, and seven out of 10 made payments using digital banking.

The declining number of bank branches has also made accessing cash harder. Just under a quarter of the branches operated by the five major banks closed between September 2019 and March 2021 – that’s about 211 branches.

Of the remaining branches, about half have reduced their days and hours.

There are also fewer ATMs. Since 2019, 181 have shut down.

Then there are the retailers themselves. While cash is legal tender – they can refuse to accept it as payment. Some businesses already follow this practice. For example, the Wellington Airport Ben & Jerry’s ice cream store is wholly cashless.

On top of that all major banks in New Zealand stopped processing cheques in July, forcing people who relied on cheques to use alternatives such as digital banking.

Who does this affect?

While contactless options are becoming more popular, some people still rely on cash.

In a Reserve Bank survey, 8% of New Zealanders used cash as their main method of payment in 2020 – that’s about 400,000 people.

Citizens Advice Bureau national adviser Sacha Green said a wide variety of people are negatively impacted by not being able to pay with cash.

“This includes people on low incomes who manage their limited finances with cash and often don’t have debit or credit cards. There are also young people who don’t have their own bank account or bank cards, and older people who rely on using cash for making payments and are reluctant or anxious about transacting online.”

This excludes people from our society, she said.

“For example, it results in people not being able to access the things they need and not being able to carry out transactions to meet their obligations, such as paying their bills,” she said.

“It can take away people’s independence and make things harder for people who are already struggling.”

The survey also found 6% of respondents said they would be unable to cope in the future if they couldn’t get or use cash.

More than a third (37%) said it would be “difficult in some situations” if they were unable to get or use cash.

Māori were more likely than non-Māori to report being unable to cope if they couldn’t get or use cash in the future.

People in rural areas that use cash have it tougher. One in 10 found it very difficult to deposit cash, compared to 3% of those living in urban areas.

When asked what makes getting cash difficult, 59% of respondents said the ATM or bank branch is a long way from their home or work.

What’s happening overseas?

In January, Which? – the UK equivalent of Consumer NZ – said nearly 10 million people in the UK are not ready or able to give up using cash.

However, it’s also getting harder for consumers in the UK to get their hands on cash. Since 2020, 3300 free-to-use cash machines and 431 bank branches have closed. From 2015 to 2018, bank branch numbers fell 40%.

Which? has called on the government to pass laws to protect cash for consumers. While legislation has been announced to protect cash-reliant consumers, there’s no timetable for its introduction.

Sweden attempted to eliminate cash use, but pulled the plug when vulnerable people, such as the elderly, were negatively affected.

Sweden’s central bank, the Riksbank, has since moved to preserve cash. In January, a law came into force requiring banks to provide access to cash services.

Is a central bank digital currency a solution?

With cash use waning, some central banks are looking into central bank digital currency (CBDC) to keep enough state-issued money in circulation.

A CBDC is an electronic form of central bank money (such as cash) that is government-backed. Like physical notes and coins, a CBDC would be issued by the Reserve Bank and wouldn’t require a bank account to use.

In September, the bank released a paper on CBDC and invited public consultation.

“A CBDC would see the features and benefits of cash enjoyed in the digital world, working alongside cash and private money held in commercial bank accounts,” Reserve Bank assistant governor Christian Hawkesby said.

“However, any decision to issue a CBDC would need to carefully consider operational risks, such as cybersecurity and impacts on the financial sector,” he said.

“We want people to know that the case for keeping cash is well understood and accepted by the Reserve Bank. Cash is here to stay for as long as some of us need it.”

According to the report, 80% of the world’s central banks – including the UK and the US – are researching CBDC.

However, it’s unclear how a digital currency would help Kiwis who still rely on cash.

The Reserve Bank is open to feedback from the public on a CBDC until 6 December.

What the experts say

The risks and benefits of a CBDC are still being researched.

Massey University School of Economics and Finance professor David Tripe said no one had really thought hard about the implications if this currency had widespread use.

“It could really impose something of a shock to the banking sector and we don’t know what the consequences of that would be,” Tripe said.

“For example, if people are going to make payments using CBDC, they’re not going to need the bank account in the same way.”

Victoria University of Wellington associate professor Martien Lubberink is sceptical about the benefits of a CBDC. He said it’s a trust issue.

When uncertainty strikes, such as a natural disaster or a pandemic, consumers turn to cash.

This is backed up by Reserve Bank data. In March 2020, when the lockdown hit, there was a rush to withdraw cash – about $800 million was issued from the Reserve Bank, compared to $150 million in March 2019.

The value of cash in circulation remains high, which means people have been holding on to the cash they withdrew last year.

“There will always be a demand for anonymous transactions and the current coin and banknote system offers that,” Lubberink said.

There’s also a risk to vulnerable groups, such as people on lower incomes or recent immigrants who traditionally may rely on cash, he said.

“If you move too quickly you might risk alienating groups that rely on cash. And then what problem have you solved?”

Have you been affected?

Have you struggled to pay with, or access, cash? Let us know. Email [email protected].