Reserve Banks Announce Cash Infrastructure Changes
As part of a broader effort to improve the way it processes currency, the Federal Reserve announced changes in June to its cash services operation at some locations.
During the next six to 12 months the Reserve Banks will switch from branch-based cash services to cash depots in Birmingham, Ala.; Oklahoma City, Okla.; and Portland, Ore. In 2004 and early 2005, the Federal Reserve already established cash depots and discontinued cash services through Reserve Bank branches in Little Rock, Ark.; Louisville, Ky.; and Buffalo, N.Y.
“We want to ensure that we’re making the best use of resources while satisfying the need for cash services,” said Gary Stern, chairman of the Reserve Banks’ Financial Services Policy Committee and president of the Federal Reserve Bank of Minneapolis. He emphasized that the Federal Reserve will continue to make cash services available to depository institutions nationwide, although in some cases using a different business model, as the demand for cash increases (see the sidebar).
Using cash depots
Cash depots provide an alternative market presence for Federal Reserve cash services. Operated by a contracted third party—usually an armored carrier—a cash depot acts as a secure collection point for Federal Reserve currency deposits from the region’s depository institutions. Following strict procedures developed by the Federal Reserve, the depot distributes currency orders that depository institutions have placed with the Reserve Bank.
The work of counting deposits and preparing orders is done by a Federal Reserve office in another city, and the Fed pays for the transportation between the Reserve Bank office and the depot.
Use of cash continues to grow
Cash remains a vital component of the nation’s payment system. While studies show that the use of electronic payments is growing, cash use has also continued to grow. Since 1994, the dollar amount of U.S. currency in circulation worldwide increased almost 88 percent to $720 billion at the end of 2004, and the amount of deposits and orders processed through Reserve Banks increased nearly 70 percent, to 75 billion banknotes, in 2004.
The Birmingham cash depot will be serviced by the Atlanta Fed’s head office, the Oklahoma City depot will be serviced by the Dallas Fed’s head office, and the Portland depot will be serviced by the San Francisco Fed’s Seattle office.
Fed will monitor cash services
The Federal Reserve will continue to evaluate cash services and plans to announce further changes as recommendations are approved. “We’ve looked at, and will continue to look at, major metropolitan markets where we do not have a Federal Reserve presence and at smaller markets where we do have a presence but where different service models might be more effective,” Stern said. “These changes and others that may come later . . . will help the Federal Reserve provide cash services more effectively, both when transitioning out of our own cash processing facilities and when establishing a first-time presence in a market.”