Harnessing technology to ensure reliable and secure currencies in the digital age

Insights

6 Mins.

From new highly secure banknotes to emerging CBDCs, the currency cycle never stands still. With crypto-assets and increased private offerings, the payment landscape is in flux. To ensure a reliable and inclusive payment ecosystem and trusted currencies, players of the currency cycle must embrace digitalization and innovation.

More than a decade ago, in autumn of 2008, pseudonymous programmer Satoshi Nakamoto published a white paper describing the plan and protocol for a decentralized digital currency. Nakamoto vanished into thin air, but the technology he created, Bitcoin, went on to change our financial world.

And while central bank digital currencies will represent an evolution within the currency industry, the path to their creation is not linear. Indeed, physical cash remains the world’s most popular means of payment.

Commercial payment offerings are becoming increasingly varied, and many people appreciate convenience, and additional benefits. However, cash and the – for the general public – still visionary concept of central bank digital currencies are public goods and accessible to all parts of society without barriers – regardless of social status, creditworthiness, age, gender, nationality, or ability.

Throughout history, currencies have been a statement of trust in central banks as the issuing institutions. Fiat money is guided by public interest with the objective to maintain stability, reduce risks for the public and ensure growth and prosperity. This goes for cash – and also applies to CBDCs. Together they form the public payment infrastructure for digital and physical payments and are therefore essential for a healthy and diverse payment ecosystem, so that people can choose freely between different payment methods today and in the future.

Sometimes, habits change faster than we expect. This was highlighted by the Covid-19 pandemic, which simultaneously demonstrated a rise in contactless payments and an increase of volume of physical cash hoarded by people. To adapt to this evolving landscape and people’s needs, industry players must ensure that they have flexibility built into their operations.

Cash – a vital part of modern life

New technologies are changing the way people pay. Nonetheless, cash hasn’t lost it’s relevance: Germany, for example, has one of the highest rates of cash use in the European Union, although Covid-19 reduced this figure. In the Euro zone, around 73% of the volume of POS and person-to-person transactions are made in cash.¹ Globally, it remains a secure basis for consumer payments. For many people it’s the most attractive means of payment: secure, universal, free of fees, protecting privacy and inclusive.

Cash is a vital part of life. This is especially true for the 1.7 billion unbanked people worldwide, but in general, it offers individual autonomy to everybody. It’s in almost every country’s top recommended emergency items next to water. Cash empowers citizens, and adding new options to the payment landscape does not mean that cash will be irrelevant: Over 70% of consumers and 68% of the business owners in the U.S. do not believe that the country will ever become completely cashless.²

End-to-end competence for the cash cycle

Model of a banknote with a dragon's head and the inscription 'RollingStar i+' — The new security thread RollingStar^® i+ significantly improves the reliable concept of combining mircomirror, color shift and magnetic technology

Cash is here to stay, and it continues to evolve. To ensure that cash is a safe and trusted means of payment, central banks require the latest security features and durable substrates. The longer a banknote lasts and the less plastic is used, the more sustainable it is. In particular, cotton-based banknotes with embedded features create confidence with unmatched security from within.³ High-quality, modern banknotes are both attractive and long-lasting: able to handle humidity, temperature changes, and everyday wear and tear, while including striking design.

Each banknote is the result of years of experience and teamwork. Every new product, feature, and idea is tested intensively, to ensure that production is feasible and costs are reasonable, and to determine what effects new production has on the entire cash cycle. Security is crucial, and our obligation does not end with the delivery to the customer. As technical requirements become increasingly complex, expertise is necessary to support our partners.

Technology advances are also evident in cash management at cash centers and cash-in-transit companies (CITs). These crucial cogs in the currency ecosystem benefit from intelligent automation and digital processes to improve efficiency, reduce costs, and increase transparency. And it’s not simply a case of delivering a new, faster machine for banknote processing – it’s also about learned insights and extensive know-how surrounding the complete cash cycle, and how stakeholder collaboration improves with the help of software, AI, virtual reality, and other new technologies, such as logistics standardization.

Increased global digitalization means that the cash cycle needs to be continuously upgraded and enhanced, and to become more automated and more efficient, in order to secure the future supply of cash. Today, we can forecast cash needs, optimize route planning, and monitor cash handling processes more efficiently and securely. When this technology is provided by a source with a holistic know-how of the complete cash cycle, the resulting insights and benefits are vast.

“CBDC – digital central bank money – does not replace cash, but rather opens up new markets for the currency. It is a platform for the growth of the digital economy“

Dr. Wolfram Seidemann
CEO G+D Currency Technology

Making the most of technology

It is a decade since venture capitalist Marc Andreessen penned his “software is eating the world” essay, but the full potential of software solutions is only now starting to be fully realized.⁴ Rather than buying individual software solutions for specific tasks, it is possible to gain myriad benefits by connecting the cash cycle from end to end. Technology solutions that digitally integrate people, data, systems, processes, and hardware across all parts of the value chain can help maximize gains across all areas of business.

The opportunity also now exists to rethink how every part of the cash cycle operates. Whether it’s a large central or commercial bank with eyes on building a new, fully automated, turnkey cash center with cutting-edge security, a CIT looking to optimize its operations, or a casino operator searching for efficiencies, a holistic mindset is key. Providers who understand the complete currency life cycle and its needs can create rich insights, lower costs, and drive productivity gains for organizations.

The evolution of currency: CBDC

A woman sits with a laptop in a café and pays contactless with her smartwatch

As players in the currency ecosystem assess their future requirements, there is one development that is fast picking up pace. Central bank digital currencies (CBDCs) have only launched in a few select markets but are under consideration globally, by central banks. The European Central Bank, for example, is preparing to launch a project in consideration of issuing a digital euro,⁵ Ghana is already piloting with G+D, Singapore has initiated the Global CBDC Challenge⁶ and indeed central banks need CBDCs in order to keep pace with private digital and crypto offerings and to provide a digital means of payments to all people.

A 2019 Federal Deposit Insurance Corporation (FDIC) survey stated that 95% of US households had a bank or a credit union account. While most Americans have a bank account, this statistic highlights that there are seven million U.S. households without one, meaning that they live without access to digital payments.⁷

CBDCs are a secure, government-backed, digital form of public money that acts as means of payment, a store of value, and a unit of account. They promise both greater financial inclusion and a future-proof digital payment infrastructure – and last but not least to drive the digital economy. How they might influence the financial and economic system needs to be safely tested and modeled. There are many questions surrounding CBDCs, from governance and public acceptance to security and economic impact, and these questions require a deep-rooted understanding of the market and its technical prerequisites.

What is certain is that CBDCs are set to revolutionize the world of currency. Alongside technological developments in physical cash, a digital cash cycle, and evolving business models, the industry is undergoing huge change. To ensure the upsides are captured, industry players need flexibility.

A holistic approach: Expanding possibilities

G+D’s Advanced Currency Management helps to ensure the entire currency cycle is as efficient and secure as possible. The holistic portfolio of physical and digital solutions seamlessly interconnect every player in the cash cycle. Each offering, from the latest in banknote design, security, and technology to automation tools and a unique CBDC solution – they are all supported by almost 170 years of industry experience and engagement. Together, the solutions enable central and commercial banks, CITs, and retailers to marry innovation with collaboration.

The Advanced Currency Management offering is one that G+D is confident will not only offer efficient, integrated, and customized high-quality solutions for every player along the currency cycle, but will also ensure the industry is ready for the future, whatever the digital age may bring. Offering solutions along the currency cycle, we are helping to secure the future of the physical and digital cash cycle together with our customers. Whether physical or digital, currencies are public money – and they will always be a pillar of our lives.

Published: 24/08/2021

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#Digitalization #Central Banks #Commercial Banks #CBDC

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