The Reserve Bank could require commercial banks to pay more to cover the cost of making cash easily available as fewer people use it.
A new Reserve Bank discussion document called Future of Money – Cash System Redesign outlines some of the challenges and possible solutions for traditional paper money.
Among those is addressing the costs of ensuring cash remains available to those who need it as bank branches and cash machines become less common.
"Falling cash use for everyday needs and the retreat from cash services by banks and retailers threatens financial and social inclusion for some," said Reserve Bank assistant governor Christian Hawkesby.
The trend had the potential to undermine the important role cash provides under-pinning confidence in private money in bank accounts, he said.
"We call this acting as a value anchor. In times of uncertainty, people seek the security of cash – knowing money can be withdrawn from bank accounts into cash provides confidence that money in bank accounts is safe too," he said.
One option could be banks paying merchants that provide cash-out services on their behalf.
Others include requiring some merchants and government agencies to accept cash, and requiring banks to provide cash services.
"Increasingly there are signs that banks are seeking to complete their transformation into primarily digital service providers," the discussion document said.
Banks were reducing branch networks, preferring to serve customers digitally wherever possible to save costs.
"As well as closing branches, many banks are opening remaining branches less often. As
well, banks have been reducing the size of their ATM networks.
The lessening of service levels provided by banks was pushing customers to other options, such as cash-out services at retailers, using pay-to-use ATMs and travelling further distances to meet their cash needs and storing more cash on private premises.
"All these options shift bank costs related to cash, and other services provided in branches, from banks to other parties," the Reserve Bank says.
The Reserve Bank was committed to keeping cash available "for as long as it is needed", Hawkesby said.
"We're wanting input to develop the right set of policies to ensure the cash system is resilient and efficient in the face of changes in use and availability."
The issue of who pays to keep cash in circulation was complex, the document said.
"The public good nature of the benefits produced by the cash system suggests taxpayers should pick up some of the tab, and they do, covering the costs of the central bank sector and related policy functions."
But a "starter-for-ten" bundle of policy options implied that "increased cash-related costs for the Reserve Bank and banks and, on balance, reduced costs for merchants and consumers".
The Reserve Bank is seeking public feedback online (via email address firstname.lastname@example.org) through to March 7.
It plans to release a summary of submissions and an indication of next steps before the end of April next year.