ATMs pose ‘considerable’ challenges for banks, says CBG Governor

By Lamin Jahateh,  Banjul The Governor of the Central Bank of The Gambia has underscored the new challenges posed by the growing network of Automated Teller Machines (ATM), for commercial and central banks, saying it has affected the compositional shift from lower denomination notes to higher denomination notes. Pic: Mr. Colley, Governor, Central Bank of The Gambia “The proliferation of Automated Teller Machines has had a considerable impact and sharpened the focus for both commercial and centrals banks,” Governor Amadou Colley said recently while officially opening a weeklong training on banknote and currency management and forecasting in central banks, organised by the West African Institute for Financial and Economic Management (WAIFEM) in collaboration with De La Rue, at the Paradise Suites Hotel in Kololi. The CBG Governor said banks do not find it commercially viable to stock the ATMs with lower denomination notes “because they run out sooner and increase both the capital cost and operating costs”. The training on banknote and currency management was necessitated by the fact that the problems of currency management in WAIFEM member countries need urgent solutions and a new direction consistent with best practices, in order to engender greater efficiency and minimize the cost of printing and minting currency. National economies in the region remain predominantly cash-based, reflecting the preference of economic agents, the weakness of the legal system to enforce contracts, and the level of development of payments in WAIFEM member countries. Generally, the major challenge to protect currencies from counterfeiters has also increasingly become more dependent on partnerships between law enforcement agencies, financial institutions and central banks, as well as with the security printing industry and high-grade supplier’s community. All these factors put together make it essential for central banks of WAIFEM member countries to consider new mechanisms for protecting banknotes and maintaining efficient currency management. Governor Colley told the workshop participants, drawn from central banks in WAIFEM member countries, including The Gambia, Ghana, Liberia, Nigeria and Sierra Leone, that currency designs present a series of interlocking challenges. “New designs must win public acceptance, incorporate requisite security features and meet durability and machine processing standards, he said, adding “fitness standards for currency in circulation must be set and monitored whether currency sorting is carried out in-house or outsourced.” He explained that effective currency management depends on excellent information and insightful analysis. Governor Colley said:  “Efficient and effective currency management commences with a strategic analysis of the currency life-cycle.  However, strategic management of currency is impossible without accurate forecasts of the demand for banknotes. The long lead time involved in banknote production makes it vital from cost and reputational point of view that central banks forecast the demand for banknotes as accurately as possible.” The benefits of accurate forecasting are obvious. It encourages more efficient procurement and reduces stockholding costs. In other words, a disciplined, balanced approach to currency management reduces opportunity losses and thus enhances the smooth functioning of the banking system. Prof. Akpan H. Expo, director general of WAIFEM, noted that no central bank function is more visible than currency management. “A currency’s integrity and efficient supply are unequivocal everyday indicators of a well-functioning central bank. In the eyes of the people, this integral central bank function should be efficient, meet demand and also present minimal issues which may damage the reputation of the country,” he said. “Of particular concern is the issue of counterfeiting, which is as old as money itself, and continues to present a potential danger to national economies and financial losses to consumers. Worse of all, recent developments in photographic and computer technology, as well as printing devices, have made the production of counterfeit money relatively easy, thereby increasing the potential threat.” The central bank officials who took part in the training covered such topics as the new challenges in currency management, new directions in banknote design, security features against counterfeiting, forecasting the demand for banknotes, and country case studies on currency management.