The Case for Cash - Part Two: The Justification

 

"AS THE NATION’S CENTRAL BANK, THE FEDERAL RESERVE IS RESPONSIBLE FOR MAINTAINING A SAFE AND EFFICIENT PAYMENT SYSTEM. CASH PLAYS A CRITICAL ROLE IN THAT SYSTEM."1

In the Case for Cash Part One: Myths Dispelled, Currency Research (CR) examined and challenged sixteen of the most prevalent myths surrounding the cash world. In Part Two of the Case for Cash, CR focuses positively on why Central Banks should invest in cash and take an active role in supporting and defending the use of cash as a means of payment.

In this report, CR examines the social and economic benefits of cash to justify the continuation of Central Bank currency issuance policies supporting cash. The availability of banknotes and coins ensures that a nation’s citizens have an active choice in consumer payments and stored value. CR also proposes a set of recommendations intended to help Central Banks sustain the social and economic benefits of cash into the future.

Stability and confidence are the recognized pillars of central banking. Without these pillars the world’s financial systems would be in great danger of failure, as witnessed as recently as the 2008 financial crisis. A global financial meltdown was prevented due to the coordinated efforts of Central Banks worldwide. Banknotes and coins play an important role as a tangible embodiment of the central banking system. Their everyday use is a constant reminder to citizens of both the stability of the nation and confidence in the Central Bank and, by extension, the nation’s government.

As an example, banknotes are key to one of The Bank of England’s core objectives, monetary stability, as stated in the Bank of England’s 2013 Quarterly Bulletin below2:

Bank of England Objectives

The Central Bank’s primary role is to support and promote the economic and financial welfare of its country and citizens. Banknotes and coins support this role. At a recent conference, Francois Groepe, Deputy Governor of the South African Reserve Bank, had this to add about the role of banknotes:

"Banknotes remain the most important contact point for Central Banks with the public and therefore they play a key role in the reputation and public perception of the central bank."3

Unlike other payment methods, cash is not subject to private, profit-oriented objectives; rather, it is a social and public good that serves wider interests. Governments, through their Central Banks, maintain monetary stability in markets by issuing cash. Furthermore, cash is an inclusive method of payment that facilitates economic transactions for all members of society. The Central Bank’s support and issuance of cash is fundamental to a nation’s economic and social systems.

Banknotes and coins are key to a Central Bank’s role and mandate:

In the Case for Cash Part Two: The Justification, Currency Research examines the social and economic benefits of cash as they relate to both the Central Bank’s objectives and the stability and confidence of the nation.


http://www.frbsf.org/economic-research/publications/economic-letter/2011/october/future-cash/

2   http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2013/qb130403.pdf

3   Address by Francois Groepe, Deputy Governor South African Reserve Bank, Association of African Banknotes and Security Documents Printers Conference, 16 - 19 November 2014, Cape Town, SA: https://www.resbank.co.za/Publications/Speeches/Pages/SpeechesbyGovernors1.aspx