CASH CIRCULATION AND DISTRIBUTION- WHAT TO OUTSOURCE, WHEN AND HOW? THE NORWEGIAN EXPERIENCES TROND EKLUND WINDSOR 2017

Transcription

1 CASH CIRCULATION AND DISTRIBUTION- WHAT TO OUTSOURCE, WHEN AND HOW? THE NORWEGIAN EXPERIENCES TROND EKLUND WINDSOR 2017

2 Content Background Banknotes and coins Responsibilities Organization Distribution of banknotes and coins Responsibilities efficiency quality Organization Destruction of banknotes Cashier's Department 2

3 BACKGROUND

4 A few facts Population: 5 million people Banknotes: 5 denominations 125 million pieces in circulation Coins 4 denominations million pieces in circulation Cashier's Department 4

5 Situation year branches, approximately 390 employees In house printing work and mint, 110 employees Branches offered services on commercial terms Checking and counting of night safe deposits Packing of notes for the various bank branches and ATMs Services for retailers Activities at the regional branches were of an increasingly commercial nature, with services that in principle were performed in competition with other operators Cashier's Department 5

6 Redistribution of cash Branch 1 Norges Bank Branch depot Bank Branch 2 Branch n Cash flow Cashier's Department 6

7 Problems raised by this situation: The boundaries between central bank tasks and services for others became unclear Uncertainty as to whether the use of the resources on the various services was appropriate Risk of subsidising services that were exposed to competition Inefficient handling and distribution of cash A need for changes! Cashier's Department 7

8 A need for changes in the - Central Bank s role and responsibilities - organization of the services resulting from the responsibilities to improve efficiency including to facilitate for the optimal quality. of banknotes in circulation Cashier's Department 8

9 The Norwegian supply chain of notes and coins. Coins NB Bank Branch Branch Banknotes Public Branch Bank Branch Cashier's Department 9

10 Content Background Banknotes and coins Responsibilities Organization Distribution of banknotes and coins Responsibilities efficiency quality Organization Destruction of banknotes Cashier's Department 10

11 The Norwegian supply chain of notes and coins. Coins NB Bank Branch Branch Banknotes Public Branch Bank Branch Cashier's Department 11

12 Two major issues to address: The role and the responsibilities of the Central Bank Division of responsibilities with other stakeholders; financial institutions, CIT, Police etc.. A measure to promote increased efficiency including the optimal level of quality and control A fundamental issue for the Central Bank The organisation of the responsibilities of the Central Bank An evaluation of appropriateness - cost efficiency, control and security - whether the Central Bank performs services itself or buys them from other operators Cashier's Department 12

13 Responsibilities has stayed unchanged Arrange for banknotes and coins to function in an efficient way, and in a way that contributes to an efficient overall payment system Optimal design and division in denominations Security (security features) Quality Terms that give incentives for optimal adaptations regarding use of services and use of cash Public education Cashier's Department 13

14 Outsourcing requires Internal competence Internal capacity Internal procedures To be able to follow up the relation with the suppliers as well as the actual deliveries. The responsibilities stays behind in the organization! Cashier's Department 14

15 Procurement Banknotes and coins are procured from external partners according to long term contracts due to: Norges Bank s volumes are too small for economies of scale Organizations with such industrial activities as core activities have comparative advantages Norges Bank is not adapted to the role as owner of industrial companies- not defined as core business The Central Bank Act puts limitations to the development in companies owned by Norges Bank Cashier's Department 15

16 Procurement cont. The Royal Norwegian Mint owned by Norges Bank was sold in A long term contract was included. This year a second international tender is announced. The first tendered contract was awarded The Norwegian Mint. The Norges Bank Printing Work was closed down in Then De La Rue and Oberthur were chosen as suppliers of banknotes after and international tender. From year 2013 Oberthur and Giesecke & Devrient are our suppliers. Cashier's Department 16

17 Content Background Banknotes and coins Responsibilities Organization Distribution of banknotes and coins Responsibilities efficiency quality Organization Destruction of banknotes Cashier's Department 17

18 The Norwegian supply chain of notes and coins. Coins NB Bank Branch Branch Banknotes Public Branch Bank Branch Cashier's Department 18

19 Responsibilities Promote an efficient overall payment system and issue banknotes and coins To ensure that sufficient quantities of banknotes and coins are made available in an efficient way To secure the right quality of banknotes in circulation As issuer: Supply notes and coins Renew notes and coins Redeem notes and coins Receive deposits from banks Cashier's Department 19

20 EFFICIENT DISTRIBUTION LIST SOME BASIC OBJECTIVES AND PRINCIPLES THAT PROMOTE EFFICIENCY

21 Efficient distribution - some basic objectives and principles that promote efficiency Clear division of responsibility Those with responsibility should also cover the costs Responsibility for costs provides an incentive to arrive at optimal solutions. Cost visibility/distribution of costs to end-users provides an incentive to adjust the consumption of the service The best qualified party should carry out the task. Norges Bank contributes where it has comparative advantages Unfit banknotes should be sorted out as close as possible at the end of the distribution chain Cashier's Department 21

22 To promote increased efficiency, Norges Banks defined it s role as 'wholesaler' in the supply of notes and coins Responsible for the core functions make available sufficient quantities of banknotes and coins to banks in the regions, deposits when there is a surplus and withdrawals when deficit of cash in a region receive unfit for destruction Cashier's Department 22

23 Banks responsible for the distribution within a region and consequentially cover the cost associated with: Processing (counting, authenticity verification and quality control, packing) of notes and coins that are of such good quality that they can remain in circulation Any processing and storage prior to the deposit to Norges Bank, and after it has been withdrawn from Norges Bank s stocks Services in connection with deposits to and withdrawals of notes and coins of good quality from Norges Bank Cashier's Department 23

24 The role as a wholesaler was implemented stepwise : Step 1: Focus on core business in cash handling. All commercial services for others were discontinued in 2001and taken over by NOKAS, established July 2001 Cashier's Department 24

25 Why took Norges Bank a leading role to establish NOKAS? Cashier's Department 25

26 Norges Bank evaluated three alternatives Continue to provide commercial services through subsidiaries Close down all activities related to commercial services Establish a new company taking over the commercial services Cashier's Department 26

27 Continue to provide commercial services through subsidiaries No solution to the fundamental problems The boundaries between central bank tasks and services for others became unclear Uncertainty as to whether the use of the resources on the various services was appropriate Risk of subsidising services that were exposed to competition Norges Bank is not adapted to the role as owner of industrial companies- not defined as core business The Central Bank Act puts limitations to the development in companies owned by Norges Bank Cashier's Department 27

28 Close down all activities related to commercial services No one ready to step in Banks had to a large extent outsourced cash handling Having a dominant market share made entry for others difficult, only one alternative provider of services Avoid monopoly or to create serious entry barriers Costly solution 14 branches, buildings and equipment ca 390 employees Political issue? Cashier's Department 28

29 Establish a new company taking over the commercial services More than one provider of services Norges Bank Solution to the fundamental problems Cost effective solution Ca 50 % of effected staff members offered new jobs Banks Existing services offered More professional provider Cost efficiency Customer focus A necessity for both Norges Bank and Banks to take ownership to establish NOKAS Cashier's Department 29

30 Establishing NOKAS the a only alternative that met the requirements\interests from Norges Bank. Norges Bank sold out it s equity interest Jan Cashier's Department 30

31 Step 2: Clarify the role as 'wholesaler' in the supply of notes and coins: Changed conditions for the deposit and withdrawal of cash from the central bank Sorted notes fit / unfit before deposit Increased size of standard units Established regional central bank depots which reduced the number of central bank depots (Jan & Sept 2005) Cashier's Department 31

32 Step 3: Introduction of compensation in the form of interest for banks' holdings of cash in private depots (Nov 2005) to facilitate the banks responsibility for distribution within a region Banks need depots for interim storage and redistribution of cash Interest earned on deposits in the Central Bank influences the banks decisions risk of not optimal decisions To eliminate this: introduction of compensation for loss of interest on banks' holdings of cash in private depots Cashier's Department 32

33 The Norwegian supply chain of notes and coins. Coins NB Bank Branch Branch Banknotes Private depot Public Branch Bank Branch Cashier's Department 33

34 Depots 13 Private depots 5 Central Bank depots NOKAS = Loomis = Central Bank depots = Cashier's Department 34

35 Quality of banknotes in circulation The quality of banknotes in circulation is vital to achieve efficiency and confidence How to define quality? Average Portion of superunfit Quality of banknotes in circulation should be monitored regularly If necessary, planed measures to influence on the quality should be brought into effect Cashier's Department 35

36 Quality of banknotes in circulation To what extent is an involvement from the central bank needed? seize and complexity of the financial sector and CITs / cash handlers traditions for cooperation within the financial sector cultural and historic impact on the role of the central bank and the role of the financial institutions traditions in forming the formal framework.... Cashier's Department 36

37 How to involve? Providing sorting services for private sector Sorting activity within the Central Bank Norges Bank Shredding unfit Incentives Regulations Cashier's Department 37

38 Norges Bank approach at present Regulations definition of fit and unfit by a published sorting guide, No requirements to sorting machines / cash handling equipment / sensors quality sorting and authenticity control prior to deposits in the central bank Incentives deposits of unfit notes or exchange into fit notes free of charge, limited requirements to standard units interest on bank s holdings in private depot if banknotes are sorted according to the guideline (+ a few additional requirement) The quality of banknotes in circulation is monitored. No need for further regulations or incentives to improve the quality at present. The future might bring new challenges. Cashier's Department 38

39 Content Background Banknotes and coins Responsibilities Organization Distribution of banknotes and coins Responsibilities efficiency quality Organization Destruction of banknotes Cashier's Department 39

40 Norges Bank must be responsible for the actual issue of notes and coins. There will be an evaluation of appropriateness - cost efficiency plus security - whether Norges Bank performs services itself or buys them from other operators Central bank services are purchased to a large extent Cashier's Department 40

41 Outsourced central bank services Norges Bank agreed a long term contract covering central bank services Depots, storing and handling deposits and withdrawals Destructions of banknotes Prices based on the costs of the various services except for destruction, market price Cashier's Department 41

42 The Norwegian supply chain of notes and coins. Coins NB NB Bank Branch Branch Banknotes Distribution vault Depots # 1,, 4 Private depot Public 1 Branch Bank Branch Cashier's Department 42

43 Content Background Banknotes and coins Responsibilities Organization Distribution of banknotes and coins Responsibilities efficiency quality Organization Destruction of banknotes Cashier's Department 43

44 Destruction of bank notes Preconditions for allowing NOKAS to carry out this task: Only in machines where Norges Bank has approved the sensors that check that the notes are genuine, and destruction takes place automatically. Rejected notes are processed by Norges Bank System for remote monitoring of destruction activities Cashier's Department 44

45 Destruction reporting systems Printout Shredder Machine Manual input in accounting system Automatic and manually control DMU NOKAS Norges Bank Cashier's Department 45

46 Monitoring concept Secure transfer of all relevant destruction data from the machines at each NOKAS site to Norges Bank. Secured area. Secured machines. CCTV Secured transfer of data. Strict reporting rules. Controlled handling of faults. Cashier's Department 46

47 Future developments: The process of changing the role of Norges Bank in cash circulation, which started in 2000, was more or less completed by the end of Most services will be outsourced unless: Security not adequate Private operators unable to utilise economies of scale and scope Cashier's Department 47

48 THANK YOU FOR YOUR KIND ATTENTION!