Cash still crucial for economy

South Africa is nowhere near eliminating cash as this form of payment remains the primary means of trade in the informal economy.

Speaking at the launch of updated banknotes and coins on Wednesday, Reserve Bank deputy governor Kuben Naidoo told Business Times that cash remained critical for spaza shops and other informal businesses where digital platforms are scarce and customers still trust physical money.

“We think cash has got a long runway still in South Africa. But we are also investing in digital and digitisation. They are not mutually exclusive, so, while we hope that an increasing proportion of transactions will move to digital, we think that cash will be around for a long time. It's therefore important to make cash available and make sure it is counterfeit-proof and reflects the heritage of the country,” he said.

Naidoo said Sweden had the world’s lowest cash in circulation at 1% of gross domestic product (GDP), whereas South Africa was at around 2.5%.

“Even in China where most transactions are in digital format there is still cash.”

Naidoo said South Africa was not as advanced as Kenya in digitising payments, and there were many African countries that were more advanced than us in payment digitisation. “Kenya is a lower per-capita-income country than South Africa and they have a more sophisticated payment system and more digital, so it is not only about money but about other things.”

We still need cash, but at the same time it is our hope that we will have a rising share of transactions that can go digital

—  Kuben Naidoo, Reserve Bank deputy governor

Naidoo said research firms including the FinMark Trust had conducted research into why South Africa has made slower progress in payment digitisation. 

“The cost of financial transactions is one; the trust that people have in the banking system and in ATMs; and some people like the degree of anonymity. In some places where there is a spaza shop there might not be a point-of-sale device, and it may not have access to Global System for Mobile Communications (GSM) or electricity even, so cash makes a lot of sense for them. All of those are factors that suggest we still need cash, but at the same time it is our hope that we will have a rising share of transactions that can go digital.” 

He said the central bank had spent R200m to upgrade notes and coins.

“We think there are seven or eight parts per million bank notes that are counterfeit. That is low by average. The international level is about 12 Every time a new set of notes and coins is introduced you have a low level of counterfeiting. You have to upgrade the security features to bring that back down. The longer we leave it, the more likely it is that counterfeiting will increase, which is why we have invested in the security features.” 

Speaking at the launch, governor Lesetja Kganyago said cash played a significant role in the economy. “It is the responsibility of the Bank to ensure that the public is protected by regularly revisiting its technical and security features, and to produce currency that is in line with global best practice, is credible and is trusted”.

Kganyago said the currency was last updated in 2018 when enhanced security features were added to the Nelson Mandela Centenary banknote series.

“Internationally it is regarded as best practice for central banks to upgrade the security features on their banknotes every six to eight years. This is to combat counterfeiting which diminishes the value of their currency, robs countries worldwide of billions of their currency annually, and slows the growth of an economy,” Kganyago said

Banknotes and coins were critical payment instruments and provided South Africans access to the informal and formal markets, he added.

“Cash is familiar, is inclusive and continues to be used across sectors of society. It is also considered to be a safe haven during times of crisis and is relied upon when other forms of payment are not as easily accessible. It is vital in the function of our economy.” 

The updated banknotes that went into circulation on Thursday continue paying tribute to Mandela’s legacy, bearing his portrait in front while celebrating South Africa ’s big five animals on the back.

In the updated notes, a preamble of the constitution has been added to Mandela's portrait, while the animals at the back are depicted with their young, celebrating the diversity of age and adding a family feel to the currency. 

For enhanced security, the watermark on the left of Mandela’s image has higher tonality levels compared to previous banknotes. Also, when the note is held to the light a shadow of the image of the big five can be seen.

The design of the coins has been renewed from those issued in 1989. Each of the six coins in the series contains an animal or plant. The 10c coin depicts a Cape honeybee, the 20c a bitter aloe, the 50c a Knysna touraco, the R1 a king protea and the R2 a springbok. For the first time an aquatic animal, the southern right whale, features on the R5 coin.  

The Bank said the updated currency would contribute towards financial inclusion as the design catered to the visually impaired. The coin series has new landing patterns on the inside of the coin to help people differentiate between the various denominations by feel.

Deputy finance minister David Masondo, also at the launch, said the rise in counterfeit money means central banks have to spend considerable amounts upgrading and improving the security of banknotes.

“Without this counterfeiting prevention effort, not only is there a risk that the public could lose faith in the currency, but there is a greater risk that substantial counterfeiting could generate an increase in the supply of money, thus causing inflation, basically eroding the purchasing power of our currency with huge consequences for society,” said Masondo.