The Future of Cash

Claire Wang and Doug Conover from the Federal Reserve's Cash Product Office discuss cash use and innovation in cash processing technology with First Vice President Mark Gould (video, 3:42).

An important role of the Federal Reserve is to maintain the quality and integrity of U.S. currency. The Cash Product Office has learned through its Diary of Consumer Payment Choice research that cash continues to play a key role in consumer spending. We've found that even if cash use were to decline 2½ percent over the next 20 years, the Federal Reserve would still be counting 20 billion notes. For the 2015 annual report, What We've Learned...and why it matters, we understand that Reserve Banks will continue to process and count an extremely high volume of cash. In serving financial institutions and the public, we've learned that it's essential to continuously innovate our cash processing technologies for optimal productivity and efficiency.

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Mark Gould:

What would happen if cash usage were to decline in the future? What would that mean for us and our operations?

Claire Wang:

That’s something we have been researching a lot in the Cash Product Office—is where is there potential for cash to decline, and especially in the retail space, we have seen a consumer shift from cash to electronic payments, particularly debit card. But even if people were to continue moving from cash as a payment instrument to cards, and even if they moved from buying things in person to online or through their smartphones, where they can't use cash to pay, there would still be a lot of cash use going on and we would still be processing a lot of cash volume. Even if cash use were to decline 2½ percent over the next 20 years, we would still be processing around 20 billion notes a year, which is about what we were processing in the '90s, and that is still a lot of processing volume and a lot of cash going through our system.

Mark Gould:

We're sitting here in Silicon Valley, the hotbed of innovation and payments and all other kinds of technology; are people still going to be using cash? Are people still using cash today?

Doug Conover:

They are still using cash today. From our most recent study, it’s actually 40 percent of all consumer transactions are made with cash, the highest of any other payment type.

I think one thing we are trying to understand is how they are using cash and how that is evolving over time. Cash has a role as a store of value and in that role, we see very high demand for currency in circulation. People like having physical cash. The second is as a payment instrument, and there you do see some growth in other payment instruments, but there are lots of reasons why people continue to use cash. Cash is used overwhelmingly for small value transactions. It’s very convenient. It’s accepted almost everywhere for every kind of transaction. People find it as a convenient payment instrument.

Mark Gould:

Doug, when we think about innovation, often we think about smartphones or electric cars or some new gizmo. Cash isn't necessarily the first thing that might come to most people's mind. Could you talk a little bit about innovation that we are leading in the cash business?

Doug Conover:

We really have been doing our best to take advantage of technological developments. I can think of two examples in the cash business. The first is over the last several years, we have made a lot of investments in our sensor technology, which have really helped us maintain the quality and integrity of U.S. currency, which is a key part of our mission. At the same time, those investments have enabled us to reduce the cost of the print order for new money and also to keep our staff and our equipment as productive as possible and really leading to significant savings for the business.

One of the most important things we do is make sure that the operations are very well-controlled, and we’re having effective risk management. We have made some changes so that we can rely a little bit more on developments in camera technology to change how we use our controls and to save in terms of staff. The new technology helps us do a better job of distinguishing between fit and unfit notes, while enabling our productivity to be very high. So we’re doing a better job of reusing notes that are fit for commerce and therefore reducing the number of notes we have to order from the BEP (Bureau of Engraving and Printing) in terms of new notes that would be put into circulation.

Mark Gould:

Is that one of the reasons now when I pull twenties from an ATM, they come out all facing different directions?

Doug Conover:

That’s right. It also saves our customers a lot of money because instead of conditioning the note so that they are all face up, they can provide them to us in any orientation whatsoever and our equipment will handle them that way.

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