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A glimpse into the future of currency management

Trends
5 Mins.

In 2011, Marc Andreessen wrote the essay “Why software is eating the world.” Over a decade later, we continue to realize the potential of digital solutions.

The payments ecosystem is developing rapidly, and new technologies and life-altering experiences – the COVID-19 pandemic, the prospect of war – are changing our financial habits. There has been a rise in contactless payments and an increase in the circulation of cash as people put money to one side in tumultuous times.

At the same time, currency management is becoming ever more digital as industry players take advantage of new technologies and as a result of global events. As Steve Bates, retired principal at KPMG in the US, says, “technology has never been more important to organizations’ ability to survive and thrive.”1

Businesspeople studying graphs on a screen in a meeting room

With moves to improve efficiency and enhance sustainability of the cash cycle, banks and cash-in-transit companies (CITs) are placing a growing emphasis on solutions that automate and forecast. By standardizing logistics, it is possible for automation to be leveraged and efficiency benefits maximized. To stay competitive and ensure business continuity in this fast-paced, transforming world, industry players must become increasingly flexible, quick to react, and digital. New digital solutions are enhancing productivity potential by allowing for increased interaction between players. Central bank digital currencies (CBDCs) are just around the corner: 90% of central banks surveyed by the Bank for International Settlements are researching the potential of a CBDC,2 and their launch is set to revolutionize the currency cycle even further.

It is crucial that a balance is struck – it is an unwavering requirement that a CBDC must work seamlessly with the physical cash cycle. However, CBDC is not intended to replace cash. Integrated digital solutions can help increase the currency cycle’s efficiency, supporting collaboration and ensuring lower costs, keeping all forms of public currency competitive. We look at five ways in which the currency ecosystem is set to evolve in the future:

  1. Digital solutions are driving efficiency and profitability

    From forecasting to predictive collection, from synchronized planning to smart currency centers – there are a range of digital solutions that help cash cycle players manage their cash better and optimize cash operations. Digital twin solutions such as Compass System Intelligence use cutting-edge technology to allow industry players to access, monitor, and utilize valuable cash processing data.

    By ensuring the synchronization of all industry players, efficiency can be maximized. In addition, through the digital connection of ATMs, an intelligent supply of cash, and predictive collection, it is possible to save on costs and reduce manual steps and manual work. Dr. Marcus Schmeisser, Product Manager, Data Analytics, at G+D notes that digital solutions drive not only efficiency, but also profitability. “Cash forecasting can significantly reduce costs,” he says. “For example, ATM forecasting can dramatically decrease the number of stops the armored courier has to make.”

  2. A connected ecosystem for cash and CBDC

    Cash centers will develop into currency centers, whereby cash and CBDC operations will be bundled in secure, interconnected, and seamless environments. These will fuse cash management and CBDC data centers for a holistic overview of the currency cycle.

    The vision is that an interdisciplinary dashboard allows for simultaneous CBDC and cash monitoring, meaning forecasting is made simple, transaction rates can be easily surveilled, and demand projections can be generated. The result? Increased transparency, enhanced efficiency, and real-time analysis.

  3. Security by design

    With the increased use of digital solutions, current security measures for physical money will need to be expanded upon to encompass cybersecurity measures, and to protect from data breaches, data theft, and growing digital risks. With the launch of CBDCs, security will be taken to the next level. An ECB public consultation on the digital euro noted that privacy and security were considered the most important features of a CBDC.3 Trust in any currency is determined by how secure it is, and that trust is imperative to the long-term success of a digital currency.

  4. Creating interdisciplinary teams

    The evolution of the currency ecosystem will require new skill sets, in interdisciplinary teams that have multiple capabilities. To ensure a smooth transition, financial institutions will have to focus on the development of these skills – comprising data management, cryptography, and cybersecurity.

  5. Iterative learning

    It has taken centuries, indeed millennia, to develop cash and the current cash cycle. CBDC is an evolution of physical cash, and innovation always comes with learning new things. The launch of CBDCs into new markets will provide chances for iterative learning – and the opportunity to expand project activities step by step.

     

Holistic currency cycle management

CBDC is a complement to cash, and as such, must be viewed holistically within the currency cycle. Advanced currency management aims to make the entire currency management process as efficient as possible – seamlessly interconnecting all players. An increase in agility will support resilience among industry players, as they embrace new innovations and an ever-changing world of currency.

  1. COVID-19 forces one of the biggest surges in tech investment in history, KPMG, 2020

  2. BIS Papers, No 125: Gaining momentum – Results of the 2021 BIS survey on central bank digital currencies, BIS, 2022

  3. ECB publishes the results of the public consultation on a digital euro, European Central Bank/Eurosystem, 2021

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