The CPT Research Centre has a key area of research focus around cash. Within the cash sector a number of terms are thrown around, and at times interchangeably. As we move toward understanding how to improve and transform, we believe it is helpful and important to be clear on what we are speaking about. Three terms that warrant clarity are: the cash system, the cash cycle, and cash infrastructure. This short article provides our working definition of these three ideas.
The cash system
The cash system is the broadest of these three concepts. The cash system refers to the entire infrastructure and network that supports the use of cash as a payment method and as a store of value. The cash system encompasses not just the movement of cash (the cash cycle) but also the broader economic, legal, and social context in which cash functions. It includes the entire ecosystem around cash as a payment method. Dependent on each country, it will include most or all of the following components:
Monetary policy framework: The central bank’s policies on money supply, interest rates, and inflation, which influence the demand for cash
Legal and regulatory environment: The laws and regulations governing the issuance, usage, availability and acceptance of cash
Financial institutions: The banks and financial entities that distribute, store, and manage cash
Cash infrastructure: Refer below for more detail, but in summary the physical and digital infrastructure that supports cash distribution and usage
Public perception and usage: Attitudes toward cash held by the public – including consumers and businesses – encompassing cultural and social attitudes, and the degree to which it is used as a payment method
The cash cycle
The cash cycle refers to the process by which cash is issued, circulated, used, and returned within an economy. It encompasses the entire lifecycle of cash, from its production by the central bank to its eventual destruction when it is no longer fit for circulation. It also includes the rate of movement of cash. The cash cycle typically includes:
Production: The creation of banknotes and coins by the central bank or mint
Wholesale distribution: The process of getting cash from the central bank to retail cash networks, typically coordinated between the central bank and commercial banks. Typically includes the wholesale holding of cash by the central bank and/or commercial banks
Retail distribution: The process of getting cash into the retail network including bank branches, ATMs and retail shops
Circulation: The movement of cash through the economy as it is used by consumers and businesses for transactions
Collection: The collection of cash from the retail network including bank branches and retail shops prior to processing
Processing: The counting and sorting of cash by financial institutions or cash logistics companies to determine value, authenticity and quality, and to allow holding in the wholesale network prior to redistribution
Destruction: The destruction of unfit banknotes and coins by the central bank or mint
Velocity: The speed at which cash circulates through the cash cycle. Typically estimated using the value of cash in circulation and an estimate of the value of cash used in payments
Cash infrastructure
The cash infrastructure is the physical and digital infrastructure that supports cash distribution and usage. This includes note printing, cash centres that hold and process cash, cash logistics apparatus, bank branches and bank branch cash technology, ATMs, and point-of-sale systems including safes, registers and other cash-oriented technology.
Why are these definitions important? Because if we are to move down a path of transformation in line with changes in cash usage and consumer behaviour, then we must understand exactly where challenges are arising, and what levers are available to focus attention on. These definitions provide a starting framework for understanding challenges and crafting solutions.
Questions? Reach out.