prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: For over a decade, each of VA’s 170 medical centers used VHA’s legacy MSPV program to order medical supplies, such as bandages and scalpels  Many of those items were purchased using the Federal Supply Schedules, which provided medical centers with a great deal of flexibility  However, as we reported in 2016, this legacy program prevented VHA from standardizing items used across its medical centers and affected its ability to leverage its buying power to achieve greater cost avoidance  Standardization is a process of narrowing the range of items purchased to meet a given need, such as buying 10 varieties of bandages instead of 100, in order to improve buying power, simplify supply chain management, and provide clinical consistency  In part because of the legacy MSPV program’s limited standardization, VHA decided to transition to a new iteration, called MSPV-NG  The transition to MSPV-NG has been a major effort, involving the MSPV- NG program office, stakeholders from the VHA’s Procurement and Logistics Office and VA’s Strategic Acquisition Center (SAC)—a VA-wide contracting organization—and logistics and clinical personnel at every medical center  The program also includes hundreds of new contracts with individual supply vendors and a new set of prime vendor contracts to distribute the supplies  VA’s goals for the MSPV-NG program include (1) standardizing requirements for supply items for greater clinical consistency; (2) demonstrating cost avoidance by leveraging VA’s substantial buying power when making competitive awards; (3) achieving greater efficiency in ordering and supply chain management, including a metric of ordering 40 percent of medical centers’ supplies from the MSPV-NG formulary; and (4) involving clinicians in requirements development to ensure uniform clinical review of medical supplies  VHA launched the MSPV-NG program in December 2016, but allowed a 4-month transition period  After April 2017, medical centers could no longer use the legacy program  MSPV-NG now restricts ordering to a narrow formulary  VHA policy requires medical centers to use MSPV- NG—as opposed to other means such as open market purchase card transactions—when purchasing items that are available in the formulary  Leading hospital networks we spoke with have similar goals to VA in managing their supply chains, including clinical standardization and reduced costs  These hospital networks reported they analyze their spending to identify items purchased most frequently, and which ones would be the best candidates to standardize first to yield cost savings  The hospitals’ supply chain managers reported establishing consensus with clinicians through early and frequent collaboration, understanding that clinician involvement is critical to the success of any effort to standardize their medical supply chain  By following these practices, these hospital networks have reported they have achieved significant cost savings in some cases, and the potential for improved patient care, while maintaining buy-in from their clinicians  VHA’s implementation of the MSPV-NG program—from its initial work to identify a list of supply requirements in early 2015, through its roll-out of the formulary to medical centers in December 2016—was not executed in line with leading practices  Specifically, VHA lacked a documented program strategy, leadership stability, and workforce capacity for the transition that, if in place, could have facilitated buy-in for the change throughout the organization  Further, the initial requirements development process and tight time frames contributed to ineffective contracting processes  As a result, VHA developed an initial formulary that did not meet the needs of the medical centers and has yet to achieve utilization and cost avoidance goals  VA made some changes in the second phase of requirements development to address deficiencies identified in the initial roll out  Key among these was to increase the level of clinical involvement, that is, to obtain input from the doctors and nurses at VA’s individual medical facilities  Despite changes aimed at improving implementation, the agency continues to face challenges that prevent the program from fully achieving its goals  VA did not document a clear overall strategy for the MSPV-NG program at the start and has not done so to date  About 6 months after our initial requests for a strategy or plan, a VHA official provided us with an October 2015 plan focusing on the mechanics of establishing the MSPV-NG formulary  However, this plan was used only within the VHA Procurement and Logistics Office and had not been approved by VHA or VA leadership  Leading practices for organizational transformation state that agencies must have well-documented plans and strategies for major initiatives (such as MSPV-NG) and communicate them clearly and consistently to all involved—which included VHA headquarters, the SAC, and all 170 medical centers  Without such a strategy, VA could not reasonably ensure that all stakeholders understood VHA’s approach for MSPV-NG and worked together in a coordinated manner to achieve program goals  In our November 2017 report, we recommended that the Director of the MSPV-NG program office should, with input from SAC, develop, document, and communicate to stakeholders an overarching strategy for the program, including how the program office will prioritize categories of supplies for future phases of requirement development and contracting  VA agreed with this recommendation and reported it would have a strategy in place by December 2017  Leadership instability and workforce challenges also made it difficult for VA to execute its transition to MSPV-NG  Our work has shown that leadership buy-in is necessary to ensure that major programs like MSPV- NG have the resources and support they need to execute their missions  Due to a combination of budget and hiring constraints, and lack of prioritization within VA, the MSPV-NG program office has never been fully staffed and has experienced instability in its leadership  As of January 2017, 24 of the office’s 40 positions were filled, and program office officials stated that this lack of staff affected their ability to implement certain aspects of the program within the planned time frames  In addition, since the inception of MSPV-NG, the program office has had four directors, two of whom were acting and two of whom were fulfilling the director position while performing other collateral duties  For instance, one of the acting MSPV-NG program office directors was on detail from a regional health network to fulfill the position, but had to abruptly leave and return to her prior position due to a federal hiring freeze  In our November 2017 report, we recommended that VHA prioritize the hiring of a MSPV- NG program director on a permanent basis  VA agreed with this recommendation and indicated a vacancy announcement will be posted by the end of 2017  The MSPV-NG program office initially developed requirements for items to be included in the formulary based almost exclusively on prior supply purchases, with limited clinician involvement  The program office concluded in its October 2015 formulary plan that relying on data from previous clinician purchases would be a good representation of medical centers’ needs and that clinician input would not be required for identifying which items to include in the initial formulary  Further, rather than standardizing purchases of specific categories of supplies—such as bandages or scalpels—program officials told us they identified medical and surgical items on which VA had spent $16,000 or more annually and ordered at least 12 times per year, and made those items the basis for the formulary  Officials said this analysis initially yielded a list of about 18,000 items, which the program office further refined to about 6,000 items by removing duplicate items or those that were not considered consumable commodities, such as medical equipment  This approach to requirements development stood in sharp contrast to those of the leading hospital networks we met with, which rely heavily on clinician input to help drive the standardization process and focus on individual categories of supplies that provide the best opportunities for cost savings  Based on the requirements developed by the program office, SAC began to issue competitive solicitations for the 6,000 items on the initial formulary in June 2015  Medical supply companies had responded to about 30 percent of the solicitations as of January 2016  As a result, according to SAC officials, they conducted outreach and some of these companies responded that VHA’s requirements did not appear to be based on clinical input and instead consisted of manufacturer-specific requirements that favored particular products instead of broader descriptions  Furthermore, SAC did not solicit large groups of related items, but rather issued separate solicitations for small groups of supply items—consisting of three or fewer items  This is contrary to industry practices of soliciting large groups of related supplies together  Therefore, according to SAC officials, some medical supply companies told them that submitting responses to SAC’s solicitations required more time and resources than they were willing to commit  By its April 2016 deadline for having 6,000 items on the formulary, SAC had been working on the effort for over a year and had established competitive agreements for about 200 items, representing about 3 percent of the planned items  Without contracts for the items on the formulary in place, VA delayed the launch of the MSPV-NG program until December 2016 and SAC began establishing non-competitive agreements in the last few months before the launch of MSPV-NG  As shown in figure 1, these non-competitive agreements accounted for approximately 79 percent of the items on the January 2017 version of the formulary  While this approach enabled the MSPV-NG program office to establish the formulary more quickly, it did so at the expense of one of the primary goals of the MSPV-NG program—leveraging VA’s buying power to obtain cost avoidance through competition


Report 2:  Once VA’s MSPV-NG initial formulary was established in December 2016, each medical center was charged with implementing it  According to logistics officials we spoke with at selected medical centers, they had varying levels of success due, in part, to incomplete guidance from the program office  Without clear guidance, many medical centers reported they were unable to find direct matches or substitutes on the MSPV-NG formulary for a substantial number of items they routinely used, which negatively impacted utilization rates for the initial formulary  In our November 2017 report, we recommended that the Director of the MSPV- NG program office provide complete guidance to medical centers for matching equivalent supply items  VA agreed with this recommendation and indicated it would provide this guidance to medical centers by December 2017  According to SAC, as of June 2017, only about a third of the items on the initial version of the formulary were being ordered in any significant quantity by medical centers, indicating that many items on the formulary were not those that are needed by medical centers  Senior VHA acquisition officials attributed this mismatch to shortcomings in their initial requirements development process as well as with VA’s purchase data  VA had set a target that medical centers would order 40 percent of their supplies from the MSPV-NG formulary, but utilization rates were below this target with a nationwide average utilization rate across medical centers of about 24 percent as of May 2017  Specifically, Chief Supply Chain Officers—who are responsible for managing the ordering and stocking of medical supplies at six selected medical centers—told us that many items they needed were not included in the MSPV-NG formulary  As such, we found that these six medical centers generally fell below VA’s stated utilization target  As shown in figure 2, among the six selected medical centers we reviewed, one met the target, while the remaining five were below 25 percent utilization  Instead of fully using MSPV-NG, the selected medical centers are purchasing many items through other means, such as purchase cards or new contracts awarded by their local contracting office, in part, because they said the formulary does not meet their needs  These approaches run counter to the goals of the MSPV-NG program and contribute to VA not making the best use of taxpayer dollars  Greater utilization of MSPV-NG is essential to VA achieving the cost avoidance goal of $150 million for its supply chain transformation effort  Under the legacy MSPV program, the National Acquisition Center tracked cost avoidance achieved by comparing prices for competitively-awarded MSPV supply contracts with prices available elsewhere  However, VHA officials stated that they are not currently tracking cost avoidance related specifically to MSPV-NG  In our November 2017 report, we recommended that the VHA Chief Procurement and Logistics Officer, in coordination with SAC, should calculate cost avoidance achieved by MSPV-NG on an ongoing basis  VA agreed with this recommendation and reported it would develop a new metric to measure cost avoidance by June 2018  In Phase 2 of MSPV-NG, the program office has taken some steps to incorporate greater clinical involvement in subsequent requirements development, but both its requirements development and SAC’s contracting efforts have been hampered by staffing and schedule constraints  In the fall of 2016, the program office began to establish panels of clinicians to serve on MSPV-NG integrated product teams (IPT) assigned to the task of developing updated requirements for the second phase of the formulary  Program officials said they had difficulty recruiting clinicians to participate  We found that slightly more than half (20 of the 38) of the IPTs had begun their work to review items and develop updated requirements by the time the MSPV-NG program launched in December 2016  Staff on the IPTs had to complete their responsibilities by the end of March 2017 while simultaneously managing their regular workload as physicians, surgeons, or nurses  By early March 2017, the IPTs still had about 4,200 items to review  Faced with meeting this unrealistic time frame, the MSPV-NG program office had 9 IPT members travel to one location—with an additional 10 members participating virtually—to meet for 5 days to review the remaining items  Members told us that this time pressure limited the extent to which they were able to pursue the goal of standardizing supplies, and that their review ended up being more of a data validation exercise than a standardization review  VHA ultimately met this compressed timeline, but in a rushed manner that limited the impact of clinician involvement  In our November 2017 report, we recommended that the VHA Chief Procurement and Logistics Officer use input from national clinical program offices to prioritize its requirements development and standardization efforts beyond Phase 2 to focus on supply categories that offer the best opportunity for standardization and cost avoidance  VA agreed with this recommendation and stated it is in the process of finalizing guidance that will detail the importance of involving the national clinical program offices in MSPV-NG requirements development and standardization efforts  The SAC plans to replace the existing Phase 1 non-competitive agreements with competitive awards based on the Phase 2 requirements generated by the IPTs, but it may not be able to keep up with expiring agreements due to an unrealistic schedule  Because they were made on a non-competitive basis, the Phase 1 agreements were established for a period of 1 year  In order to keep the full formulary available, the SAC director said the staff must award 200 to 250 contracts before the Phase 1 agreements expire later this year  SAC officials acknowledged that it is unlikely that they will be able to award the contracts by the time the existing agreements expire  According to SAC officials, they are in the process of hiring more staff to deal with the increased workload  Further, the SAC division director told us that they canceled all outstanding Phase 2 solicitations in September 2017 due to low response rates, protests from service-disabled veteran-owned small businesses, and changes in overall MSPV-NG strategy  In our November 2017 report, we recommended that the MSPV-NG program office and SAC should establish a plan for how to mitigate the potential risk of gaps in contract coverage while SAC is still working to make competitive Phase 2 awards, which could include prioritizing supply categories that are most likely to yield cost avoidance  VA agreed with this recommendation and indicated it has developed a plan to mitigate the risk of gaps in contract coverage with short- and mid-term procurement strategies to ensure continued provision of medical and surgical supplies to VHA facilities  The department also stated that it plans to replace the current MSPV-NG contract and formulary process with a new approach where the prime vendor would develop the formulary  However, VA will likely face challenges in this new approach until it fully addresses the existing shortcomings in the MSPV-NG program  Chairman Roe, Ranking Member Walz, and Members of the Committee, this concludes my prepared statement  I would be pleased to respond to any questions that you may have at this time  If you or your staff have any questions about this statement, please contact Shelby S  Oakley at 202-512-4841 or OakleyS@gao gov  In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement  Individuals who made key contributions to the report on which this testimony is based are Lisa Gardner, Assistant Director; Emily Bond; Matthew T  Crosby; Lorraine Ettaro; Michael Grogan; Jeff Hartnett; Katherine Lenane; Teague Lyons; Roxanna Sun; and Colleen Taylor  This is a work of the U S  government and is not subject to copyright protection in the United States  The published product may be reproduced and distributed in its entirety without further permission from GAO  However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately 

ground_truth: The Temporary Assistance for Needy Families (TANF) block grant funds a wide range of benefits and services for low-income families with children. TANF was created in the 1996 welfare reform law (P.L. 104-193). This report responds to some frequently asked questions about TANF; it does not describe TANF rules (see, instead, CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements, by Gene Falk). TANF Funding and Expenditures. TANF provides fixed funding for the 50 states, the District of Columbia, the territories, and American Indian tribes. The basic block grant totals $16.5 billion per year. States are also required in total to contribute, from their own funds, at least $10.3 billion annually under a maintenance-of-effort (MOE) requirement. Though TANF is best known for funding cash assistance payments for needy families with children, the block grant and MOE funds are used for a wide variety of benefits and activities. In FY2017, expenditures on basic assistance totaled $7.1 billion—23% of total federal TANF and MOE dollars. Basic assistance is often—but not exclusively—paid as cash. In addition to funding basic assistance, TANF also contributes funds for child care and services for children who have been, or are at risk of being, abused and neglected. Some states also count expenditures in prekindergarten programs toward the MOE requirement. The TANF Assistance Caseload. A total of 1.2 million families, composed of 3.1 million recipients, received TANF- or MOE-funded assistance in September 2018. The bulk of the "recipients" were children—2.3 million in that month. The assistance caseload is heterogeneous. The type of family once thought of as the "typical" assistance family—one with an unemployed adult recipient—accounted for 32% of all families on the rolls in FY2016. Additionally, 31% of cash assistance families had an employed adult, while 38% of all TANF families were "child-only" and had no adult recipient. Child-only families include those with disabled adults receiving Supplemental Security Income (SSI), adults who are nonparents (e.g., grandparents, aunts, uncles) caring for children, and families consisting of citizen children and ineligible noncitizen parents. Cash Assistance Benefits. TANF cash benefit amounts are set by states. In July 2017, the maximum monthly benefit for a family of three ranged from $1,021 in New Hampshire to $170 in Mississippi. Only New Hampshire (at 60% of the federal poverty guidelines) had a maximum TANF cash assistance amount for this sized family in excess of 50% of poverty-level income. Work Requirements. TANF's main federal work requirement is actually a performance measure that applies to the states. States determine the work rules that apply to individual recipients. TANF law requires states to engage 50% of all families and 90% of two-parent families with work-eligible individuals in work activities, though these standards can be reduced by "credits." Therefore, the effective standards states face are often less than the 50% or 90% targets, and vary by state. In FY2017, states achieved, on average, an all-family participation rate of 53.0% and a two-parent rate of 69.5%. In FY2017, two jurisdictions did not meet the all-family participation standard: Nevada and Guam. This is a reduction from FY2012, when 16 states did not meet that standard. In FY2017, nine jurisdictions did not meet the two-parent standard. States that do not meet work standards are at risk of being penalized by a reduction in their block grant.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: This report provides responses to frequently asked questions about the Temporary Assistance for Needy Families (TANF) block grant  It is intended to serve as a quick reference to provide easy access to information and data  Appendix B presents a series of tables with state-level data  This report does not provide information on TANF program rules (for a discussion of TANF rules, see CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements , by Gene Falk)  On January 24, 2019, the President signed legislation ( P L  116-4 ) that funds TANF and related programs through June 30, 2019  The legislation permits states to receive their quarterly TANF grants for the 2 nd quarter (January through March) and 3 rd quarter (April through June) of FY2019  Additional legislation would be required to pay TANF grants in the final quarter (July through September) of FY2019  TANF programs are funded through a combination of federal and state funds  In FY2018, TANF has two federal grants to states  The bulk of the TANF funding is in a basic block grant to the states, totaling $16 5 billion for the 50 states, the District of Columbia, Puerto Rico, Guam, the Virgin Islands, and American Indian tribes  There is also a contingency fund available that provides extra federal funds to states that meet certain conditions  Additionally, states are required to expend a minimum amount of their own funds for TANF and TANF-related activities under what is known as the maintenance of effort (MOE) requirement  States are required to spend at least 75% of what they spent in FY1994 on TANF's predecessor programs  The minimum MOE amount, in total, is $10 3 billion per year for the 50 states, the District of Columbia, and the territories  TANF was created in the 1996 welfare reform law, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P L  104-193 )  A TANF basic block grant amount—both nationally and for each state—was established in the 1996 welfare reform law  The amount established in that law for the 50 states, District of Columbia, territories, and tribes was $16 6 billion in total  From FY1997 through FY2016, that amount remained the same  It was not adjusted for changes that occur over time, such as inflation, the size of the TANF assistance caseload, or changes in the poverty population  During this period, the real (inflation-adjusted) value of the block grant declined by one-third (33 1%)  Beginning with FY2017, the state family assistance grant was reduced by 0 33% from its historical levels to finance TANF-related research and technical assistance  The reduced block grant amount is $16 5 billion  Table 1 shows the state family assistance grant, in both nominal (actual) and real (inflation-adjusted) dollars for each year, FY1997 through FY2018  In real (inflation-adjusted) terms, the FY2018 block grant was 36% below its value in FY1997  Figure 1 shows the uses of federal TANF grants to states and state MOE funds in FY2017  In FY2017, a total of $31 1 billion of both federal TANF and state MOE expenditures were either expended or transferred to other block grant programs  Basic assistance—ongoing benefits to families to meet basic needs—represented 23% ($7 1 billion) of total FY2017 TANF and MOE dollars  TANF is a major contributor of child care funding  In FY2017, $5 billion (16% of all TANF and MOE funds) were either expended on child care or transferred to the child care block grant (the Child Care and Development Fund, or CCDF)  TANF work-related activities (including education and training) were the third-largest TANF and MOE spending category at $3 3 billion, or 11% of total TANF and MOE funds  TANF also helps low-wage parents by helping to finance state refundable tax credits, such as state add-ons to the Earned Income Tax Credit (EITC)  TANF and MOE expenditures on refundable tax credits in FY2017 totaled $2 8 billion, or 9% of total TANF and MOE spending  TANF is also a major contributor to the child welfare system, which provides foster care, adoption assistance, and services to families with children who either have experienced or are at risk of experiencing child abuse or neglect, spending about $2 2 billion on such activities  TANF and MOE funds also help fund state prekindergarten (pre-K) programs, with total FY2017 expenditures for that category also at $2 5 billion  TANF and MOE funds are also used for short-term and emergency benefits and a wide range of other social services  For state-specific information on the use of TANF funds, see Table B-1 and Table B-2   TANF law permits states to "reserve" unused funds without time limit  This permits flexibility in timing of the use of TANF funds, including the ability to "save" funds for unexpected occurrences that might increase costs (such as recessions or natural disasters)  At the end of FY2017 (September 30, 2017, the most recent data currently available), a total of $5 1 billion of federal TANF funding remained neither transferred nor spent  However, some of these unspent funds represent monies that states had already committed to spend later  At the end of FY2017, states had made such commitments to spend—that is, had obligated—a total of $1 8 billion  At the end of FY2017, states had $3 3 billion of "unobligated balances " These funds are available to states to make new spending commitments  Table B-3 shows unspent TANF funds by state  This number is not known  Federal TANF reporting requirements focus on families receiving only ongoing assistance   There is no complete reporting on families receiving other TANF benefits and services  Assistance is defined as benefits provided to families to meet ongoing, basic needs  It is most often paid in cash  However, some states use TANF or MOE funds to provide an "earnings supplement" to working parents added to monthly Supplemental Nutrition Assistance Program (SNAP) allotments  These "earnings supplements" are paid separately from the regular TANF cash assistance program  Additionally, TANF MOE dollars are used to fund food assistance for immigrants barred from regular SNAP benefits in certain states  These forms of nutrition aid meet an ongoing need, and thus are considered TANF assistance  As discussed in a previous section of this report, TANF basic assistance accounts for about 24% of all TANF expenditures  Therefore, the federal reporting requirements that pertain to families receiving "assistance" are likely to undercount the number of families receiving any TANF-funded benefit or service  Table 2 provides assistance caseload information  A total of 1 2 million families, composed of 3 1 million recipients, received TANF- or MOE-funded assistance in September 2018  The bulk of the "recipients" were children—2 3 million in that month  For state-by-state assistance caseloads, see Table B-4   Figure 2 provides a long-term historical perspective on the number of families receiving assistance from TANF or its predecessor program, from July 1959 to September 2017  The shaded areas of the figure represent months when the national economy was in recession  Though the health of the national economy has affected the trend in the cash assistance caseload, the long-term trend in receipt of cash assistance does not follow a classic countercyclical pattern  Such a pattern would have the caseload rise during economic slumps, and then fall again during periods of economic growth  Factors other than the health of the economy (demographic trends, policy changes) also have influenced the caseload trend  The figure shows two periods of sustained caseload increases: the period from the mid-1960s to the mid-1970s and a second period from 1988 to 1994  The number of families receiving assistance peaked in March 1994 at 5 1 million families  The assistance caseload fell rapidly in the late 1990s (after the 1996 welfare reform law) before leveling off in 2001  In 2004, the caseload began another decline, albeit at a slower pace than in the late 1990s  During the recent 2007-2009 recession and its aftermath, the caseload began to rise from 1 7 million families in August 2008, peaking in December 2010 at close to 2 0 million families  By September 2018, the assistance caseload had declined to 1 2 million families  Table B-5 shows recent trends in the number of cash assistance families by state  Before PRWORA, the "typical" family receiving assistance has been headed by a single parent (usually the mother) with one or two children  That single parent has also typically been unemployed  However, over the past 20 years the assistance caseload decline has occurred together with a major shift in the composition of the rolls  Figure 3 shows the change in the size and composition of the assistance caseload under both AFDC (1988 and 1994) and TANF  In FY1988, an estimated 84% of AFDC families were headed by an unemployed adult recipient  In FY2016, families with an unemployed adult recipient represented 32% of all cash assistance families  This decline occurred, in large part, as the number of families headed by unemployed adult recipients declined more rapidly than other components of the assistance caseload  In FY1994, a monthly average of 3 8 million families per month who received AFDC cash assistance had adult recipients who were not working  In FY2016, a monthly average of 485,000 families per month had adult recipients or work-eligible individuals, with no adult recipient or work-eligible individual working  With the decline in families headed by unemployed adults, the share of the caseload represented by families with employed adults and "child only" families has increased  In FY2017, families with all adult recipients unemployed and families with employed adult recipients each represented 31% of all assistance families  The latter category includes families in "earnings supplement" programs separate from the regular TANF cash assistance program  "Child-only" families are those where no adult recipient receives benefits in their own right; the family receives benefits on behalf of its children  The share of the caseload that was child-only in FY2017 was 38%  In FY2017, families with a nonrecipient, nonparent relative (grandparents, aunts, uncles) represented 14% of all assistance families  Families with ineligible, noncitizen adults or adults who have not reported their citizenship status made up 9% of the assistance caseload in that year  Families where the parent received Supplemental Security Income (SSI) and the children received TANF made up 9% of all assistance families in FY2017  There are no federal rules that help determine the amount of TANF cash benefits paid to a family  (There are also no federal rules that require states to use TANF to pay cash benefits, though all states do so ) Benefit amounts are determined solely by the states  Most states base TANF cash benefit amounts on family size, paying larger cash benefits to larger families on the presumption that they have greater financial needs  The maximum monthly cash benefit is usually paid to a family that receives no other income (e g , no earned or unearned income) and complies with program rules  Families with income other than TANF often are paid a reduced benefit  Moreover, some families are financially sanctioned for not meeting a program requirement (e g , a work requirement), and are also paid a lower benefit  Figure 4 shows the maximum monthly TANF cash benefit by state for a single mother caring for two children (family of three) in July 2016  The benefit amounts shown are those for a single-parent family with two children  For a family of three, the maximum TANF benefit paid in July 2017 varied from $170 per month in Mississippi to $1,201 per month in New Hampshire  The map shows a regional pattern to the maximum monthly benefit paid, with lower benefit amounts in the South than in other regions  Only New Hampshire (at 60% of the federal poverty guidelines) had a maximum TANF cash assistance amount for this sized family in excess of 50% of poverty-level income  TANF's main federal work requirement is actually a performance measure that applies to the states, rather than individual recipients  States determine the work rules that apply to individual recipients  The TANF statute requires states to have 50% of their caseload meet standards of participation in work or activities—that is, a family member must be in specified activities for a minimum number of hours  There is a separate participation standard that applies to the two-parent portion of a state's caseload, requiring 90% of the state's two-parent caseload to meet participation standards  However, the statutory work participation standards are reduced by a "caseload reduction credit " The caseload reduction credit reduces the participation standard one percentage point for each percentage point decline in a state's caseload  Additionally, under a regulatory provision, a state may get "extra" credit for caseload reduction if it spends more than required under the TANF MOE  Therefore, the effective standards states face are often less than the 50% and 90% targets, and vary by state and by year  States that do not meet the TANF work participation standard are at risk of being penalized through a reduction in their block grant  However, penalties can be forgiven if a state claims, and the Secretary of HHS finds, that it had "reasonable cause" for not meeting the standard  Penalties can also be forgiven for states that enter into "corrective compliance plans," and subsequently meet the work standard  The 50% and 90% target standards that states face, as well as the caseload reduction credit, date back to the 1996 welfare reform law  However, the Deficit Reduction Act of 2005 (DRA, P L  109-171 ) made several changes to the work participation rules effective in FY2007 The caseload reduction credit was changed to measure caseload reduction from FY2005, rather than the original law's FY1995  The work participation standards were broadened to include families receiving cash aid in "separate state programs " Separate state programs are programs run with state funds, distinct from a state's "TANF program," but with expenditures countable toward the TANF MOE  HHS was instructed to provide definition to the allowable TANF work activities listed in law  HHS was also required to define what is meant by a "work-eligible" individual, expanding the number of families that are included in the work participation calculation  States were required to develop plans and procedures to verify work activities  The American Recovery and Reinvestment Act of 2009 (ARRA, P L  111-5 ), a law enacted in response to the sharp economic downturn of 2007-2009, held states "harmless" for caseload increases affecting the work participation standards for FY2009 through FY2011  It did so by allowing states to "freeze" caseload reduction credits at pre-recession levels through the FY2011 standards  HHS computes two work participation rates for each state that are then compared with the effective (after-credit) standard to determine if it has met the TANF work standard  An "all-families" work participation rate is computed and compared with the all-families effective standard (50% minus the state's caseload reduction credit)  HHS also computes a two-parent work participation rate that is compared with the two-parent effective standard (90% minus the state's caseload reduction credit)  Figure 5 shows the national average all-families work participation rate for FY2002 through FY2017  For the period FY2002 through FY2011, states achieved an average all-families work participation rate hovering around 30%  The work participation rate increased since then  In FY2016, it exceeded 50% for the first time since TANF was established  However, it is important to note that the increase in the work participation rate has not come from an increase in the number of recipients in regular TANF assistance programs who are either working or in job preparation activities  This increase stems mostly from states creating new "earnings supplement" programs that use TANF funds to aid working parents in the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) or who have left the regular TANF assistance programs for work  Figure 6 shows which states did not meet the TANF all-families work participation standards from FY2006 through FY2017  Before FY2007, the first year that DRA was effective, only a few jurisdictions did not meet TANF all-families work participation standards  However, in FY2007, 15 jurisdictions did not meet the all-families standard  This number declined to 9 in FY2008 and 8 in FY2009  In FY2012, despite the uptick in the national average work participation rate, 16 states did not meet the all-family standard, the largest number of states that did not meet their participation standards in any one year since the enactment of TANF  FY2012 was the year that ARRA's "freeze" of the caseload reduction credit expired, and states were generally required to meet higher standards than in previous years  The number of jurisdictions that did not meet the all-families standard declined over the FY2012 to FY2017 period  In FY2017, two jurisdictions did not meet the all-family participation standard: Nevada and Guam  In addition to meeting a work standard for all families, TANF also imposes a second standard—90%—for the two-parent portion of its cash assistance caseload  This standard can also be lowered by caseload reduction  Figure 7 shows whether each state met its two-parent work participation standard for FY2006 through FY2017  However, the display on the table is more complex than that for reporting whether a state met or did not meet its "all family" rate  A substantial number of states have reported no two-parent families subject to the work participation standard  These states are denoted on the table with an "NA," indicating that the two-parent standard was not applicable to the state in that year  Before the changes made by the DRA were effective, a number of states had their two-parent families in separate state programs that were not included in the work participation calculation  When DRA brought families receiving assistance in separate state programs into the work participation rate calculations, a number of states moved these families into solely state-funded programs  These are state-funded programs with expenditures not countable toward the TANF maintenance of effort requirement, and hence are outside of TANF's rules  For states with two-parent families in their caseloads, the table reports "Yes" for states that met the two-parent standard, and "No" for states that did not meet the two-parent standard  Of the 28 jurisdictions that had two-parent families in their FY2017 TANF work participation calculation, 19 met the standard and 9 did not  Appendix A  Supplementary Tables Appendix B  State Tables


Report 2: Because of technological advances in digitization and data processing, electronic forms of payment have become increasingly available, convenient, and cost efficient  Established technologies, such as credit and debit cards, have long been a popular payment option  In addition, new payment methods (e g , PayPal's Venmo app and Square's point-of-sale hardware, among others) use underlying traditional banking and payments systems to make electronic payments less expensive and more available to individuals and small businesses  Newer digital currencies, such as cryptocurrencies, offer alternative (though not yet widely adopted) options that have a high degree of independence from traditional systems  Although cash remains an important method of payment in the United States (see Figure 1 ), anecdotal reporting suggests that various electronic payment systems have become so effective and inexpensive relative to cash payments that some U S  businesses—even those at which sales generally have a low dollar value—are increasingly choosing not to accept cash  In some developed countries, such as Sweden, cash payments are becoming relatively scarce  In addition, a number of central banks worldwide are examining the possibility of issuing government-backed digital currencies that exist only electronically  These trends suggest that due to buyer or seller preference or government policy, the role of cash in the payment system may continue to decline, perhaps significantly, in coming years  Some observers have examined the consequences of an evolution away from cash  Proponents of reducing the use of physical currency (or even eliminating it all together and becoming a cashless society ) argue that it will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy  Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system's vulnerability to cyberattack, and reduce personal privacy  Given developments and debate in this area, Congress may consider policy issues related to the declining use of cash relative to electronic forms of payment  This report is divided into two parts  The first part analyzes cash and noncash payment systems, and the second analyzes potential outcomes if cash were to be significantly displaced as a commonly accepted form of payment  Part I describes the characteristics of cash and the various electronic payment systems that could potentially supplant cash  The noncash payment systems include traditional electronic payment systems (such as credit cards or payment apps) and alternative electronic payment systems, focusing on private systems using distributed ledger technology (such as cryptocurrencies) and central bank digital currencies (which are only under consideration by central banks at this time)  Part I also examines the advantages and costs specific to each payment system and the potential obstacles to the adoption of alternative electronic payment systems  Part II of this report analyzes the potential implications of a reduced role of cash payments in the economy, including potential benefits, costs, and risks  The report also includes an Appendix that presents two international case studies of economies in which noncash payment systems rapidly expanded  This section provides analysis of cash, traditional noncash payment systems, and potential alternative payment systems  It describes the characteristics, presents usage data, and analyzes the advantages and costs of each system  It also includes a discussion on the potential decline in cash usage and a short inset on the legality of businesses' refusing to accept cash  How well something serves as money in a payment system depends on how well it serves as (1) a medium of exchange, (2) a unit of account, and (3) a store of value  To function as a medium of exchange , the thing must be tradable and agreed to have value  To function as a unit of account , the thing must act as a good measurement system  To function as a store of value , the thing must be able to purchase approximately the same value of goods and services at some future date as it can purchase now  Currently, cash continues to serve the three functions of money well as part of a robust, physical payment system  Physical currency can be carried easily in a pocket and thus is tradeable  Each unit of currency (e g , a dollar) is identical and can be divided into fractions (e g , cents) of the whole, making dollars effective units of account  A bill or coin, when well cared for, will not degrade substantively for years, meaning it can function as a store of value  In the United States, paper currency and coins are produced by the Bureau of Engraving and Printing (BEP) and the United States Mint, respectively, both of which are units within the Department of the Treasury (Treasury)  The Federal Reserve (the Fed) distributes the currency and coin to banks, savings associations, and credit unions upon request, and the banks in turn make the cash available to their customers  When a bank orders cash, the Fed deducts the amount from the bank's Fed account  The revenues and costs to the government from this system are examined in the " Cash Effects on Government " section below  Data suggests that the demand for cash in the United States has continued to grow despite the introduction of new payment services and systems  Fed data indicates that the amount of currency in circulation has increased steadily over at least the past 20 years (see Figure 2 )  As of December 31, 2018, there were more than 43 billion notes (more commonly called bills ) worth over $1 67 trillion in circulation  The Fed determines how many new notes "are needed to meet the public's demand [, which]…reflects the Board's assessment of the expected growth rates for payments of currency to and receipts of currency from circulation " This growth in demand is not wholly surprising, because demand for cash would be expected to grow as does the economy, the population, and price levels  In addition, the demand for cash is growing because certain people may be increasingly using it solely as a store of value or safe investment (imagine the proverbial risk-averse saver keeping money under the mattress), rather than to make purchases  In addition, there remains a high demand for U S  currency abroad, both as a store of value and medium of exchange  Some evidence suggests people are using cash for payments less often  For example, according to preliminary findings of a Fed survey, cash transactions in the United States fell from 40 7% of all transactions in 2012 to 32 5% in 2015  Taken together with data from the triennial Federal Reserve Payment S tudy , these survey results suggest the number of cash transactions during that time fell from roughly 84 8 billion per year to 69 4 billion  However, Fed economists have subsequently noted that significant changes in the survey methodology and unaccounted for effects from economic conditions means the eight-point decline in the share of transactions "almost surely does not accurately reflect actual changes in consumer preferences for cash " After making adjustments to account for these factors, those economists estimated the decline in the percentage of transactions that were in cash was roughly half of the initially estimated decline in the share of cash transactions  The most recent data indicates that Americans used cash for 31% of their transactions in 2016, with stronger cash preference for small, in-person transactions (60% of in-person transactions under $10)  One of the main benefits of cash is that it is a simple, easy, robust payment mechanism that requires no ancillary technologies  Payers and payees validate and settle transactions simply by physically exchanging the currency; the consumer needs no magnetic-stripe card or mobile device, and the seller does not need a card-reading machine or other payment-receiving device  Relatedly, some observers assert cash provides a security against potential disruptions to electronic payment systems  For example, in the event of a significant cyberattack or extended power outage, cash could continue to serve the functions of money while electronic payment systems could not  Cash also acts as a safe asset in which to invest savings and its usage can involve a high degree of privacy, features that will be examined in more detail in the " Potential Costs and Risks of a Reduced Role for Cash " section below  In addition, holding cash might impart other psychological benefits to a consumer, such as feelings of greater control over budgeting and associations with wealth  Using and accepting cash involves certain costs to consumers and businesses  For example, consumers may have to pay fees to withdraw cash from automatic teller machines (ATMs)  Banks with more than $1 billion in assets are required to report their revenue from ATM fees, and a Congressional Research Service (CRS) analysis indicates those banks collected at least $1 9 billion in ATM fees in 2018  Other costs—including consumer losses through theft, misplacement, or accidental destruction of cash—are more difficult to estimate  Businesses must pay for cash management services, such as cash delivery with armored trucks (an industry with estimated annual U S  revenues of $2 8 billion) and security systems to dissuade thieves or robbers from attempting to steal cash kept on the retailer's premises  Despite these efforts, U S  businesses lose about $40 billion in employee cash thefts per year  Similar to consumer's costs, quantifying all the costs of cash to businesses presents challenges, as certain costs are not straightforward and easily measurable  For example, some portion of retail staff and managers' paid time is spent counting cash and reconciling tills  In addition to its impacts on consumers and businesses, cash directly affects government revenues through three main mechanisms: (1) seigniorage (i e , the "profit" the government makes by producing cash), (2) Federal Reserve remittances to the Treasury, and (3) tax evasion  Two of these mechanisms—seigniorage and remittances—increase government revenues  The third mechanism—tax evasion, facilitated by the anonymous and difficult-to-trace nature of cash transactions—decreases government revenue  Revenue Generating: Seignoriage   In general, the value of the physical currency produced by the government exceeds the cost incurred to produce it  For example, a $100 bill costs about 14 cents to print, generating revenues $99 86 greater than cost  The profit generated by this difference is called seigniorage, and this income would decrease if demand for cash were to fall  In FY2017, the U S  Mint generated $391 5 million in net income from circulating coins and the U S  Bureau of Engraving and Printing generated revenues $693 million greater than expenses  Revenue Generating: Fed Remittances   The second source of cash-generating revenue is remittances, which are transferred from the Fed to the U S  Treasury  Any income the Fed earns after expenses and dividends paid to member banks, it remits to the Treasury (in 2017, the amount was $80 6 billion), and hence becomes a source of revenue for the federal government  A significant expense for the Fed is the interest it pays on depository institutions' deposits held in their Fed accounts  Such payments accounted for $28 9 billion of the Fed's $35 4 billion total expenses in 2017  However, currency is a Fed liability on which it pays no interest  Recall that when a bank orders cash from the Fed, the Fed deducts the amount from the bank's account  Thus, the more cash that is in circulation, the less interest the Fed must pay, and the greater its remittances to Treasury  In January 2019, there was approximately $1 7 trillion of currency in circulation, and the Fed (as of this publication) paid an annual interest rate of 2 4% on reserve balances  By these measures, if all currency were instead bank reserve balances held at the Fed, it could increase Fed expenses (and thus reduce government revenues) by more than $40 billion a year  If interest rates on reserves (which change when the Fed alters monetary policy) rose or fell, then expenses would increase or decrease, respectively, in this scenario  Revenue Reducing: Tax Evasion   Because cash leaves no electronic record, wage earners and businesses are able to underreport (in general, illegally) how much cash they receive in order to reduce their tax payments  Thus, cash contributes to the tax gap —the difference between what the government is owed and what is actually paid  The most recent Internal Revenue Service estimate released in 2016 examined the tax gap for the years 2008-2010, and found that the gap due to underreporting averaged $387 billion a year  This estimate does not directly measure how much underreporting is facilitated by cash payments, and the figure for recent years is likely to be different  However, it provides a general context for how much tax revenue the government does not collect due to underreporting that is at least in part made possible by cash transactions  Businesses have long set conditions under which they would not accept cash  For example, certain businesses refuse to accept high-denomination bills  However, according to anecdotal reporting, retail businesses are increasingly deciding that the costs of transacting in cash are high enough that they would rather not accept it at all  Notably, this is occurring at businesses at which transactions are typically in-person for small dollar amounts—traditionally viewed as the type of transactions for which cash is the least costly option  If these stories are in fact indicative of a sustained trend, widespread non-acceptance of cash could have a variety of effects on consumers, businesses, as well as society and the economy at large  One particular effect that has drawn significant attention, as well as litigation, is that non-acceptance of cash could potentially marginalize those that have limited access to the financial system or mobile technological devices  This issue is examined in the " Lack of Financial Access for Certain Groups " section later in the report  Were cash to decline as a payment system, the most likely replacement—at least at the current time—would appear to be traditional noncash, electronic payment systems, such as debit cards, credit cards, or payment mobile apps  In traditional noncash payment systems like those that are prevalent today, participants hold their money in an account at a bank or other financial intermediary that maintains accurate ledgers of how much money each customer has available  To make a payment, the payer instructs (using a physical check or an electronic message) the intermediary to transfer money to the recipient's account  If the recipient holds an account at a different intermediary, those intermediaries will send messages to each other via messaging networks connecting them, instructing each to make the necessary changes to their ledgers  The intermediaries validate the transaction, ensure the payer has sufficient funds for the payment, deduct the appropriate amount from the payer's account, and add that amount to the payee's account  For example, in the United States, a retail consumer may initiate an electronic payment by swiping a debit card, at which time an electronic message is sent over a network instructing the purchaser's bank to send payment to the seller's bank  Those banks then make the appropriate changes to their account ledgers (possibly using the Fed's payment system) reflecting that value has been transferred from the purchaser's account to the seller's account  As with physical currency, digital entries in account ledgers can serve the three functions of money well for use in payments  Instructions to change entries in a ledger can easily be sent, making the values in the ledger easily tradable  Numerical entries can be denominated in identical and divisible units, making them good units of account  Because numbers in a ledger can remain unchanged during periods when no transactions are made, they can serve as a store of value  According to the most recent complete Federal Reserve Payment S tudy on noncash payments, the number of traditional noncash payments made in the U S  totaled more than 144 billion transactions with a value of almost $178 trillion in 2015  These included payments via debit cards (69 5 billion transactions worth $2 56 trillion), credit cards (33 8 billion transactions worth $3 16 trillion), automated clearing house payments (ACH; 23 5 billion transactions worth $26 83 trillion), and check payments (17 3 billion payments worth $26 83 trillion)  Between 2012 and 2015, the number of transactions of the three electronic systems, debit, credit, and ACH, grew at annual rates of 7 1%, 8 0%, and 4 9%, respectively  Their values grew by 6 8%, 7 4%, and 4 0%, respectively  Check payments declined by an annual rate of 4 4% by number and 0 5% by value  According to a recent supplement to that study, both the growth of electronic payments and the decline of check payments accelerated in 2017  Payment based on physically exchanging currency has some notable shortcomings that can be addressed by a payment system based on maintaining account ledgers  One is that physical currency requires both the payer and the payee to either (1) be physically near each other, allowing the physical currency to pass from the possession of the former into the possession of the latter; or (2) have a sufficient trust in each other that the payee believes an assurance that he or she will receive the currency later  Another shortcoming is that holders of physical currency may have little recourse if it is lost, stolen, or accidentally destroyed  If, instead, money is exchanged by making valid changes in ledgers maintained by trusted intermediaries, the exchange can be accomplished without the risk of lost, stolen, or damaged currency  In addition, noncash systems can make payments fast, easy, and convenient  Using them decreases the need for people to make regular estimations of how much cash they need to have on a particular day, the frequency of trips to the bank or ATM to get cash, and the amount of time waiting for cashiers to make change  Instead, a plastic card or an app on a mobile device can replace those activities with a card swipe or button push  As information technology has progressed, the convenience has increased and the option to use electronic payments has become nearly ubiquitous  Until fairly recently, it was not uncommon for a retail establishment to reject card payments  Now, services such as Venmo, Apple Pay, and Google Pay, and card-reading devices, such as those made by Square, have made electronic payment options increasingly available, even for individuals to accept electronic payments from other individuals  The previously mentioned anecdotal reporting suggests there is a growing number of establishments that only accept electronic payments  For these systems to work well, participants must trust that banks and other intermediaries are keeping accurate ledgers that are changed only for valid transfers  Otherwise, an individual's money could be lost or stolen if a bank records the account as having an inaccurately low amount or transfers value without his or her permission  Another advantage of systems using traditional intermediaries is that they have a number of features that generate a high degree of trust and accuracy  Banks and other intermediaries have both a market and governmental incentive to be accurate  A bank or financial intermediary that does not have a good reputation for protecting a customer's money and processing transactions accurately would likely lose customers  In addition, governments typically subject banks to laws and regulations designed in part to ensure that banks are well run and that the money they hold is safe  As such, banks take substantial measures to ensure security and accuracy  In addition, intermediaries generally are required to provide certain protections to consumers involved in electronic transactions, in part to protect them from losses resulting from unauthorized transfers  For example, the Electronic Fund Transfer Act ( P L  95-630 ) limits consumers' liability for unauthorized transfers made using their accounts  Similarly, the Fair Credit Billing Act ( P L  93-495 ) requires credit card companies to take certain steps to correct billing errors, including when the goods or services a consumer purchased are not delivered as agreed  Both laws also require financial institutions to make certain disclosures to consumers related to the costs and terms of using an institution's services  Significant costs and physical infrastructure underlie systems for electronic money transfers to ensure the systems' integrity, performance, and availability  For example, payment system providers operate and maintain robust digital networks to connect retail locations with banks  The Fed operates and maintains electronics networks to connect banks to itself and each other  These intermediaries store and protect huge amounts of data  Because these intermediaries are generally highly regulated, they incur regulatory compliance costs  Intermediaries recoup the costs associated with these systems and regulations and earn profits by charging fees directly when the system is used (such as the fees a merchant pays to have a card reading machine and "swipe fees" on each card transaction) or by charging fees for related services (such as checking account fees)  It is difficult to quantify how much traditional noncash payment systems cost and what portion of those costs is passed on to consumers and businesses  Performing a quantitative analysis is beyond the scope of this report  What bears mentioning here is that certain costs of traditional payment systems—and, in particular, the fees intermediaries in those systems charge—have at times been high enough to raise policymakers' concern and elicit policy responses  For example, in response to businesses' assertions that Visa and MasterCard had exercised market power in setting debit card swipe fees at unfairly high levels, Congress included Section 1075 in the Dodd-Frank Consumer Protection and Wall Street Reform Act (Dodd-Frank Act; P L  111-203 )—sometimes called the Durbin Amendment  Section 1075 directs the Fed to limit debit card swipe fees charged by banks with assets of more than $10 billion  In addition, studies on unbanked and underbanked populations cite the fees associated with traditional bank accounts, a portion of which may be the result of providing payment services, as a possible cause for those populations' limited interaction with the traditional banking system  Although electronic payment systems protect customers from physical theft and are subject to a complex and sometimes overlapping array of state and federal laws, regulators, and regulations related to cybersecurity, they could nevertheless expose individuals to cyber-theft and identity theft  In addition, the systems themselves could be susceptible to disruption from cyberattacks  The occurrence of successful hacks of banks and other financial institutions, wherein huge amounts of individuals' personal information are stolen or compromised, illustrates cyber-related risks  For example, in 2014, JPMorgan Chase, the largest U S  bank, experienced a data breach that exposed financial records of 76 million households  However, no consensus exists on how best to reduce the occurrence of such incidents, and whether current cybersecurity measures and regulatory frameworks are effective and efficient in mitigating cybersecurity risk is an open question  For a more detailed examination of cybersecurity at financial institutions, see CRS Report R44429, Financial Services and Cybersecurity: The Federal Role , by N  Eric Weiss and M  Maureen Murphy  In addition, although the traditional electronic payment system is sufficiently fast and convenient to complete many transactions, other transactions can involve problematic delays  One such delay that can be particularly costly for consumers is the lag between when a payment (such as a paycheck) is deposited and when the full amount of the funds are available to the individual  Depending on factors related to which networks the payer's and payee's bank uses to process payments, it can take up to two business days (or more under certain circumstances) after a deposit is made for banks to fully validate, process, and settle the deposit  Settlement delays can create a situation in which an individual has made a deposit that would give sufficient funds to pay a bill that is due, but nevertheless may overdraw the account because the deposit is awaiting processing  In such a situation, the individual faces a choice between costly outcomes—a late payment penalty on the bill, an overdraft fee on the bank account, or a fee from a check cashing or payday lending service  These costs are likely disproportionately borne by low- or moderate-income individuals who typically have low balances in their bank accounts  Faster or immediate payment processing could potentially reduce or eliminate costs incurred by individuals facing this situation  While delays in the payment system may seem anachronistic at a time when digital messages can be sent and data processed nearly instantaneously, the fact remains that aspects of the systems, networks, and infrastructures used today (including those operated by the Fed) were developed and deployed decades ago  Both the Fed and private institutions are working to increase system speed and efforts are underway to make real-time payments in the United States the norm  However, payment system operators arguably have little incentive to achieve faster or real-time payments because (1) they are in compliance with the current requirement facing banks pursuant to the Expedited Funds Availability Act of 1987 ( P L  108-100 ) to generally make most types of deposits available by the second business day, (2) updating legacy systems is costly for the institutions that operate them, and (3) banks are generating revenue through overdraft fees  Currently, it appears that the traditional noncash payment systems described above likely would replace cash payments should cash usage significantly decline  However some observers, citing the various costs and disadvantages associated with those systems—including delays in processing as well as reliance on traditional financial intermediaries—point to alternative electronic payment systems as potential dominant payment systems of the future  Cryptocurrenc y , such as Bitcoin , is the most well-known of these alternatives  Described in more detail below, cryptocurrencies use blockchain technology and public or "distributed" ledgers to achieve validated transfers of digital representations of value  The use of these systems to make payments is quite rare relative to cash and traditional systems, and the role they will play in the future is speculative  Nevertheless, their potential to significantly affect the usage of cash and traditional systems for payments has drawn the attention of central banks  Some central banks are examining whether they should create a comparable payment system of digital currencies to offer the advantages of those systems themselves and to avoid being bypassed in the future  This section briefly describes (1) existing private alternative electronic payment systems and (2) possible future central bank-run systems  With respect to alternative electronic payment systems, the section examines their potential advantages, costs, and obstacles to their widespread adoption  With respect to a potential central bank-run system, which is more speculative at this time, the section examines potential advantages and obstacles to their widespread adoption and uncertainties they present  In general, private electronic payment systems using distributed ledgers allow individuals to establish an account identified by a string of numbers and characters (often called an address or public key ) that is paired with a password or private key known only to the account holder  A transaction occurs when two parties agree to transfer digital currency (perhaps in payment for a good or service) from one account to another  The buying party will "unlock" the currency used as payment with her private key, allowing some amount to be transferred from her account to the seller's  The seller then "locks" the currency in her account using her own private key  From the perspective of the individuals using the system, the mechanics are similar to authorizing payment on any website that requires an individual to enter a username and password  In addition, companies offer applications or interfaces that users can download onto a device to make transacting in cryptocurrencies more user-friendly  Many digital currency platforms use blockchain technology to validate changes to the ledgers  In a blockchain-enabled system, payments are validated on a public or "distributed" ledger by a decentralized network of system users and cryptographic protocols  In these systems, parties that otherwise do not know each other can exchange something of value (i e , a digital currency) not because they trust each other but because they trust the platform and its protocols to prevent invalid changes to the ledger  A notable feature of transfers using blockchain is that they require no centralized, trusted intermediary such as a bank, government central bank, or other financial or government institution  Proponents envision these systems could achieve instantaneous transfers, although they currently require minutes or hours to finalize transfers  The decentralized nature of digital currencies and their recent proliferation poses challenges to performing industry-wide analysis of their use in payments  For example, as of August 27, 2018, one industry group purported to track trading prices of 1,890 cryptocurrencies alone  For brevity and clarity, this report uses statistics on Bitcoin—the first and most well-known cryptocurrency, the total value of which accounts for more than half of the industry as a whole —as an illustrative example of a digital currency's use in payments  In January 2017, the price of a Bitcoin on an exchange was about $993  The price surged during the year, peaking at about $19,650 in December 2017, an almost 1,880% increase  However, the price then dramatically declined  Overall, the price of Bitcoin has experienced a high degree of volatility  On March 12, 2018, the price of Bitcoin was $3,860, down 80% from its peak  More recently, the price rebounded and was $5,948 on May 8, 2019  Although price data on Bitcoin illustrates the public interest in and overall demand for this cryptocurrency, it is a poor indicator of how often it is being exchanged for goods and services (i e , how often it is being used as money)  Certain analyses appear to show that digital currencies are not being widely used and accepted as payment for goods and services, but rather as investment vehicles  The number of Bitcoin transactions may serve as a better indicator—though a flawed one—of the use of Bitcoin as a payment system  This number reveals how many times Bitcoins are transferred between accounts each day, and data indicates the number of transactions is miniscule compared with those of traditional systems  For example, in 2019 through March 12, the Bitcoin system averaged about 310,000 transactions per day globally, a pace that would result in about 113 million transactions per year  Recall that in the United States alone, more than 144 billion traditional (nearly 1,275 times as many) noncash payments were made in 2015  Moreover, one problem with this measure it that it is a count of how many times two parties have exchanged Bitcoin, not a count of how many times Bitcoin has been used to buy something  Some portion of those exchanges, possibly a significantly large portion, is driven by investors giving fiat currency to an exchange to buy and hold the Bitcoin as an investment  In those transfers, Bitcoin is not acting as money (i e , not being exchanged for a good or service)  Advantages of Private Payment Systems Using Distributed Ledgers   As discussed in an earlier section, traditional electronic payment systems involve a number of intermediaries, such as government central banks and private financial institutions  To carry out transactions, these institutions operate and maintain extensive electronic networks and other infrastructure, employ workers, and require time to finalize transactions  To meet costs and earn profits, these institutions charge various user fees  Cryptocurrency advocates anticipate that a decentralized payment system operated through the internet could be less costly than traditional payment systems and existing infrastructures  However, whether such efficiencies can or will be achieved remains an open question  In addition, opening a bank account or otherwise using traditional electronic payment systems generally requires an individual to divulge to a financial institution certain basic personal information, such as name, Social Security number, and birthdate  Financial institutions store and may analyze or share this information  In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data  Individuals seeking a higher degree of privacy or control over their personal data than that afforded by traditional systems may choose to use an alternative digital currency system that provides a degree of pseudonymity or anonymity  Although inflation in the United States and other developed economies has been low in recent decades, some individuals may nevertheless believe that nontraditional digital money may maintain its value better than government-backed money in traditional systems  The dollar and most modern currencies are fiat money—that is, money that derives value based solely on government decree  Historically, incidents of hyperinflation in certain countries have seen government-backed currencies lose most or nearly all of their value  Thus, some individuals may judge the probability of their fiat money losing a significant portion of its value to be undesirably high  These individuals may place greater trust in the ability of a decentralized network using cryptographic protocols that limit the creation of new money to maintain stable value of money than in the ability of government institutions to do so  Obstacles to Widespread Adoption of Private Payment Systems Using Distributed Ledgers   Several characteristics of cryptocurrency undermine its ability to serve the functions of money in a payment system  Currently, a relatively small number of businesses and individuals use or accept cryptocurrency for payment  As discussed above, Bitcoin transactions have averaged about 310,000 per day globally  Cryptocurrency may be used as a medium of exchange less frequently than traditional money for several reasons  Unlike the dollar and most other government-backed currencies, cryptocurrencies are not legal tender, meaning creditors are not legally required to accept them to settle debts  Consumers and businesses also may be hesitant to place their trust in these systems because they have limited understanding of them  Relatedly, consumers and businesses may have sufficient trust in and be generally satisfied with traditional payment systems  The recent high volatility in the price of many cryptocurrencies undermines their ability to serve as a unit of account and a store of value  Cryptocurrencies can have significant value fluctuations within short periods of time; as a result, pricing goods and services in units of cryptocurrency would require frequent repricing and likely would cause confusion among buyers and sellers  Whether cryptocurrency systems are scalable —meaning their capacity can be increased in a cost-effective way without loss of functionality—is uncertain  At present, the systems underlying cryptocurrencies do not appear capable of processing the number of transactions that would be required of a widely adopted, global payment system  One concern involves the significant energy consumption required to run and cool the computers that validate the transactions on these platforms  Costs of Private Payment Systems Using Distributed Ledgers   As the energy consumption of a digital currency system demonstrates, these systems are not costless  In addition to energy, they require computer hardware and facilities  Often making payments on these platforms involves paying fees  Whether these direct economic costs of using the system are fixed or—as they develop and mature—become less than existing systems is an open question  Digital currency systems, at least as currently designed and regulated, also might impose other costs on society  Some critics of these systems fear their pseudonymous, decentralized nature may provide a new avenue for criminals to launder money, evade taxes, or sidestep financial sanctions  For example, Bitcoin was the currency used on the internet-based, illegal drug marketplace and Bitcoin escrow service called Silk Road  This marketplace facilitated more than 100,000 illegal drug sales from approximately January 2011 to October 2013, at which time the government shut down the website and arrested the individuals running the site  Consumer groups and other observers are also concerned that digital currency users are inadequately protected against unfair, deceptive, and abusive acts and practices  The way cryptocurrencies are sold, exchanged, or marketed can subject cryptocurrency exchanges or other cryptocurrency-related businesses to generally applicable consumer protection laws, and certain state laws and regulations are being applied to cryptocurrency-related businesses  However, other laws and regulations aimed at protecting consumers engaged in electronic financial transactions may not apply  For example, the Electronic Fund Transfer Act of 1978 (EFTA; P L  95-630 ) requires traditional financial institutions engaging in electronic fund transfers to make certain disclosures about fees, correct errors when identified by the consumer, and limit consumer liability in the event of unauthorized transfers  Because no bank or other centralized financial institution is involved in digital currency transactions, EFTA generally has not been applied to these transactions  In addition, the laws and regulations that do apply generally have not been implemented specifically to address digital currencies or related businesses  Whether the current regulatory regime applied to digital currency transactions, but originally implemented for different financial activities (e g , traditional money transmission), is effective and efficient is a debated issue  Finally, some central bankers and other experts and observers have speculated that the widespread adoption of cryptocurrencies could affect the ability of the Fed and other central banks to implement and transmit monetary policy  The Fed conducts monetary policy with the goals of achieving price stability and low unemployment  Like other central banks it achieves its goals by, putting it simply, controlling the amount of money in circulation in the economy  If one or more additional currencies that the government did not control the supply of were also prevalent and viable payment options, it could limit central banks' ability to transmit monetary policy to financial markets and the real economy  In this scenario, central banks likely would have to make larger adjustments to the fiat currency they do control to have the same effect as previous adjustments  Another possibility is that they would have to start buying and selling the digital currencies themselves in an effort to affect the availability of these currencies  These risks have led some central banks and other observers to suggest that perhaps central banks could issue their own digital currencies  The risks and challenges posed by private digital currencies have led some observers to suggest that perhaps central banks should offer their own central bank digital currencies (CBDCs) to realize certain hoped-for efficiencies in the payment system in a way that would be "safe, robust, and convenient " To date, no country has successfully created a CBDC for payment use by the general public  The extent to which a central bank could or would want to create a new, digital-only payment system likely would be weighed against the consideration that these government institutions already have trusted digital payment systems in place  Because of such considerations, the exact form that CBDCs would take could vary across a number of features and characteristics  Nevertheless, some central banks are examining the idea of CBDCs and the possible benefits and issues they may present  For the purposes of this discussion, this report examines a CBDC that would be available to consumers for retail payments  Some proposals would limit CBDCs to wholesale payments between banks and other financial institutions  Potential Advantages of CBDCs   Proponents of CBDCs generally argue they could provide efficiency gains over traditional legacy systems and contend that central banks could use the technologies underlying digital currencies to deploy a faster, less costly government-supported payment system  Observers have speculated that a CBDC could take the form of a central bank allowing individuals to hold accounts directly at the central bank  Advocates argue that a CBDC created in this way could increase systemic stability by imposing additional discipline on commercial banks  Because consumers would have the alternative of safe deposits made directly with the central bank, commercial banks likely would have to offer interest rates and limit risks at levels necessary to attract deposits above any deposit insurance limit  In addition, CBDCs could increase government revenue through a seignoriage-like mechanism  A more expansive definition of seignoriage is the income government obtains from having government liabilities act as money  Physical money—because it is liquid and low-risk—earns no interest rate and carries a cost to produce  Money—both physical and electronic in the traditional system—is also a balance sheet liability to the issuing authority, such as the Fed or other central banks  If the Fed allowed individuals to hold accounts directly with the Fed, the Fed would issue low- or no-interest liabilities to individuals (as electronic entries in a ledger produced at less cost than physical currency)  Then, as happens now, the Fed would use those liabilities to fund purchases of assets that earn a higher interest rate than what the Fed pays on liabilities  This would produce income, perhaps greater income than is earned through traditional seignoriage  Potential Obstacles to Creation of CBDCs   One of the main arguments critics—including various central bank officials—make against CBDCs is that there is no "compelling demonstrated need" for such a currency, because central banks and private banks already operate trusted electronic payment systems that generally offer fast, easy, and inexpensive transfers of value  Opponents also argue that a CBDC in the form of individual direct accounts at the central bank would reduce the role of private banks in financial intermediation and potentially expand the role of government central banks inappropriately  A portion of consumers likely would shift their deposits away from private banks toward central bank digital money, which would be a safe, government-backed liquid asset  Deprived of this funding, private banks likely would have to reduce their lending, leaving central banks to decide whether or how they should support lending markets to avoid a reduction in credit availability  In addition, skeptics of CBDCs object to the assertion that these currencies would increase systemic stability, arguing that CBDCs would create a less-stable system because they would facilitate runs on private banks  These critics argue that at the first signs of distress at an individual institution or the bank industry, depositors would transfer their funds to this alternative liquid, government-backed asset  Uncertaint y : CBDCs' Potential Effects on Monetary Policy   Observers also disagree over whether CBDCs would have a desirable effect on central banks' role and abilities in carrying out monetary policy  Proponents argue that, if individuals held a CBDC on which the central bank set interest rates, the central bank could directly transmit a policy rate to the macroeconomy, rather than achieving transmission through the rates the central bank charges banks and the indirect influence of rates in particular markets  In addition, if holding cash (which in effect has a 0% interest rate) were not an option for consumers, central banks potentially would be less constrained by the zero lower bound   The zero lower bound is the idea that the ability of individuals and businesses to hold cash and thus avoid negative interest rates limits central banks' ability to transmit negative interest rates to the economy  Critics argue that taking on such a direct and influential role in private financial markets is an inappropriately expansive role for a central bank  They assert that if CBDCs were to displace cash and private bank deposits, central banks would have to increase asset holdings, support lending markets, and otherwise provide a number of credit intermediation activities that private institutions currently perform in response to market conditions  As discussed above, although cash remains a frequently used payment system, other payment systems continue to develop that offer their own advantages and costs  Various trends suggest that due to market preference or government policy, the role of cash in the payment system has begun to decline and may continue to decline, perhaps significantly, in coming years  If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society  This section of the report describes a number of potential benefits of a reduced role for cash in the U S  economy and the various risks and costs that may occur  Many of the factors discussed below may not occur wholly as a benefit, risk, or cost; rather, a potential benefit may bring with it a risk, and vice versa  Some observers argue that reducing or eliminating cash payments in the U S  economy will produce certain beneficial outcomes, including improved efficiency in payments, reduced criminality, and improved ability for the Fed to implement certain monetary policy  As discussed below, although these outcomes generally may be beneficial, that does not mean that there are not certain costs, or drawbacks, that may counterbalance these positive effects  Proponents of noncash payment systems assert that net economic benefits from the use and maintenance of a cash payment system are (or will become as technology advances) less than the net benefits of using and maintaining noncash systems  Put another way, they argue that the resources, labor, and capital that go into the cash system—for example, producing currency; stocking and maintaining ATMs; safely transporting cash; protecting businesses from theft and robbery—make it less efficient than noncash systems  If true—and absent policy interventions—market forces likely will result in the displacement of cash by other payment methods as businesses increasingly choose not to accept cash and consumers increasingly prefer not to use it  Under this scenario, although the payment system on net may be more efficient, it would not necessarily be true that all people would benefit, as is discussed in the " Potential Costs and Risks of a Reduced Role for Cash " section  Proponents of cashless societies assert that the elimination of cash would reduce crime by making operating an illegal enterprise more difficult and certain crimes, such as robbery and burglary, less remunerative  These proponents argue that criminals are more likely to conduct business in cash and to hold cash as an asset, in large part because cash is anonymous and allows them to avoid establishing relationships with and generating records at financial institutions that may be subject to anti-money laundering reporting and compliance requirements  Accordingly, they assert that the elimination of cash would be beneficial on net, because operating a criminal enterprise would become more difficult  Certain studies have shown that the prevalence of cash is correlated with the incidence of crime  In addition, the amount of "strong" currencies (i e , highly valuable and highly stable currencies) in circulation exceeds what many people would consider a reasonable amount needed for typical consumer transactions  For example, with the U S  population at approximately 329 million, the $1 6 trillion of currency in circulation equates to about $4,900 per person  Proponents of a cashless society assert that this number is inflated due in part to the cash demand of criminals (although part is also due to demand for the U S  dollar from abroad)  Although a robust analysis of this question is beyond the scope of this report, arguments that cash facilitates crime and even that reducing cash may reduce crime appear in certain cases to be well founded  However, when analyzing the net benefit to society of going cashless, reduced crime should be weighed against any cost that a reduction in cash would impose on legitimate cash users  One such legitimate group is examined in more detail in the " Lack of Financial Access for Certain Groups " section below  The effect a reduction in cash payments would have on crime should not be overstated, as criminals likely would seek other ways to commit and hide their crimes  For example, the prevalence of cybercrime may increase  Another benefit (from a macroeconomic perspective) of a cashless society cited by economists would be the potential elimination of the practical inability of central banks, such as the Fed, to implement negative interest rates  When an economy is in recession or otherwise performing poorly, one monetary policy response is to lower interest rates  Lower interest rates can spur companies to borrow in order to invest and spur consumers to borrow in order to make additional purchases, thus boosting economic activity and mitigating the impact of recessions  However, many economists believe that policymakers are constrained by a zero lower bound—that whatever policy rate they may set, interest rates in many markets will not fall below zero  The reason is that holding cash offers a zero interest rate  Thus, if the Fed attempted to implement negative interest rates, individuals could avoid those rates by transferring their funds into cash  If holding cash was not an available option, it would be easier for negative interest rates to be transmitted to more financial markets  However, any benefit provided by increasing policymakers' ability to affect the macroeconomy with negative interest rates should be weighed against the cost it would impose on the individual savers whose account balances would decrease in value during a period of negative interest rates  Skeptics of reducing or eliminating the role of cash in the economy assert that cash serves a number of beneficial purposes, and argue that eliminating it would have adverse effects on certain financially vulnerable groups, eliminate an asset that provides safety against cyber vulnerabilities and financial crises, and reduce individuals' privacy  As with potential benefits to a reduction in cash, many of the factors discussed below may not occur wholly as a risk or cost, and they must be weighed against potential benefits when considering their overall impact  If the United States were to move toward becoming a cashless society that required consumers to use noncash, electronic payment services, it could present difficulties for those segments of the population who lack access to the financial system or to an electronic network  Access to electronic payments typically requires an account with some financial institution, usually a bank  Often—and increasingly—it also involves using or accessing a device connected to the internet  However, these factors can present hardships and obstacles for certain vulnerable groups  The Federal Deposit Insurance Corporation reported that in the United States in 2015, 9 million households were unbanked, meaning that no member had a bank account  Of these, 37 8% reported that the main reason was that they do not have enough money to keep in an account, 9 4% reported that fees were too high, and 1 9% reported fees were unpredictable  In total, this indicates almost half of the total unbanked, or roughly 4 5 million households, do not access banking services due to economic obstacles  Sweden has been at the forefront of the move away from cash (see Appendix ), and observers there, including Stefan Ingves, governor of Sweden's central bank, have voiced some of these concerns about going cashless  In addition, anecdotal reporting indicates that retirees in Sweden are finding the change difficult and costly  In the United States, many assert that it would be beneficial to bring the unbanked into the banking system  Nevertheless, if the unbanked engaged with the banking system at a relatively high cost only because cash (which was a less expensive option for them) was no longer available, it would likely be a detrimental outcome for this group  Conversely, if the move to a cashless system led to less costly financial access for this group, they may stand to benefit  Proponents of cash often cite the robustness of physical currency as a payment system  Once in an individual's possession, cash does not rely on financial institutions or information technology (IT) based payment networks  These proponents argue that if payments became entirely electronic, events such as power outages, hacker attacks, or (in the event of future cyber war) a state-sponsored attack would be capable of shutting down the most simple financial transaction—the exchange of money for goods and services  The financial system is already exposed to these threats to varying degrees, but the argument is that the elimination of cash amplifies those risks  Because it functions well as a store of value, cash is a relatively safe asset in which to invest savings with no risk of losses resulting from a decline in a securities value or the failure of financial institutions or other entities  The perceived safety of cash and its non-reliance on financial institutions also makes it desirable in times of financial turmoil or distress, when confidence in such institutions decreases  During these periods, many people prefer assets that are free from credit risk  For some of these individuals, deposit insurance guarantees may not wholly eliminate their fear of losses, whereas the safety of physical currency would  Holding cash, then, could also provide a sense of security to risk-adverse people that may mistrust the financial system  Opening a bank account or otherwise using traditional noncash payment systems generally requires an individual to divulge certain basic personal information, such as name, Social Security number, and birthdate, to a financial institution  Financial institutions store this information and information about the transactions linked to this identity  Under certain circumstances, they may analyze or share this information, such as with a credit-reporting agency  In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data  Finally, provided it follows proper legal procedures, the government also can access this information under certain circumstances  Similarly, although new alternative payment systems may offer a degree of anonymity or pseudonymity, these systems still generate an unalterable record of transactions between parties  Cash, by contrast, can be used anonymously, and people may wish to use cash for legitimate purposes to ensure their privacy  Certain consumers who are uncomfortable divulging and generating private information—even basic information that a transaction occurred—may prefer cash to any electronic payment methods  Cash has a number of advantageous features that has made it a simple and robust payment system throughout most of human history  It is difficult to imagine conditions under which cash would be replaced entirely, and disappear from the economy, at least in the near future  Nevertheless, its hegemony as a payment system appears to have come to an end, as electronic payment systems have gained popularity, and the ubiquity of cash acceptance for in-person purchases also seems precarious  If noncash payment systems significantly displace cash and cash usage and acceptance significantly declines, there would be a number of effects (both positive and negative) on the economy and society  Now or in the near future, policymakers may face decisions about whether to impede or hasten the decline of cash and consider the implications of doing so  Two countries provide interesting case studies of market forces drastically changing the way a society makes payments  Sweden In recent years, the use of cash in Sweden has quickly and substantially declined, dropping from 40% to 13% of transactions between 2010 and 2018  In many cases, businesses no longer accept cash, and one survey indicated that two-thirds of small businesses planned to stop accepting cash  Anecdotal reporting indicates that about 5% of bank branches accept cash deposits or offer cash withdrawals  Furthermore, Sweden's central bank is examining the possibility of creating registered accounts for the purpose of issuing currency electronically  Reportedly, many Swedes are generally in favor of the trend (the displacement of cash is due largely to consumer preference), though some have voiced concerns about financial access issues that the change causes for certain groups, such as the elderly  Observers have put forward a number of explanations for the Sweden's growing preference for electronic payment methods such as cards and mobile app enabled payments  One argument asserts that Sweden is an especially technology savvy country  As such, Swedes are comfortable using electronic payment systems, and Swedish companies have developed fast and easy payment technologies, such as iZettle and Swish  Some observers also have suggested that Swedes are especially trusting of institutions and thus have fewer privacy concerns  Some have noted that the timing of the start of the decline in cash use among Swedes coincided with the start of a transition to new Swedish banknotes and coins  They suggest that this spurred people and businesses to make a switch not to the new bills and coins but instead to electronic payment methods  Kenya In 2007, a company named Safaricom—Kenya's largest mobile phone network operator—introduced a "mobile money" service called M-Pesa ("M" stands for "mobile" and "pesa" is the Swahili word for money)  Users of the service download a phone application and deposit cash with M-Pesa employees called "agents " They can then transfer money into any other M-Pesa account using their phone  Originally intended as a service for Kenyans who had moved to a city to earn money to send back home to rural areas, the service became tremendously popular as a general use payment system  By 2016, there were approximately 31 6 million mobile money accounts in Kenya, which had a total population of 47 6 million in 2017  Many observers identify the combination of lack of access to traditional banking services and the proliferation of mobile phones in Kenya as a driving factor for the expansion of M-Pesa and subsequent mobile money services  These observers argue that in Kenya, as with many developing and largely rural nations, both consumers and banks view financial and bank services as a business need of the rich  In 2006, before the introduction of M-Pesa, just 19% of Kenyans had bank accounts and there was 1 5 bank branches for every 100,000 people  However, 54% of Kenyans had their own mobile phone or access to one  Another explanation for the rise of mobile money is that Safaricom successfully identified a large, profitable, and previously untapped market in Kenya  Available mobile technology and its proliferation among the population meant low-cost money transfers could be profitably offered to lower-income consumers  Certain observers assert that the success of M-Pesa has caused Kenyan financial institutions to reevaluate their business models, shifting their focus to offering services to lower-income groups than they previously targeted, and cite the increase in bank accounts and the decline of the average account balances as evidence of this change  As a result, the portion of the Kenyan population with access to some type of formal financial services has grown from 27% in 2006 to 75% in 2017  Although mobile money appears to have filled a market need, the degree to which it has displaced cash should not be overstated  An official at Safaricom estimated in February 2018 that as many as 8 out of 10 transactions are still cash transactions, as Kenyans still reportedly prefer cash for small, in-person purchases because of convenience and using M-Pesa generally involves fees  In addition, workers are still generally paid in cash 

ground_truth: Electronic forms of payment have become increasingly available, convenient, and cost efficient due to technological advances in digitization and data processing. Anecdotal reporting and certain analyses suggest that businesses and consumers are increasingly eschewing cash payments in favor of electronic payment methods. Such trends have led analysts and policymakers to examine the possibility that the use and acceptance of cash will significantly decline in coming years and to consider the effects of such an evolution. Cash is still a common and widely accepted payment system in the United States. Cash's advantages include its simplicity and robustness as a payment system that requires no ancillary technologies. In addition, it provides privacy in transactions and protection from cyber threats or financial institution failures. However, using cash involves costs to businesses and consumers who pay fees to obtain, manage, and protect cash and exposes its users to loss through misplacement, theft, or accidental destruction of physical currency. Cash also concurrently generates government revenues through "profits" earned by producing it and by acting as interest-free liabilities to the Federal Reserve (in contrast to reserve balances on which the Federal Reserve pays interest), while reducing government revenues by facilitating some tax avoidance. The relative advantages and costs of various payment methods will largely determine whether and to what degree electronic payment systems will displace cash. Traditional noncash payment systems (such as credit and debit cards and interbank clearing systems) involving intermediaries such as banks and central banks address some of the shortcomings of cash payments. These systems can execute payments over physical distance, allow businesses and consumers to avoid some of the costs and risks of using cash, and are run by generally trusted and closely regulated intermediaries. However, the maintenance and operation of legacy noncash systems involve their own costs, and the intermediaries charge fees to recoup those costs and earn profits. The time it takes to finalize certain transactions—including crediting customer accounts for check or electronic deposits—can lead to consumers incurring additional costs. In addition, these systems involve cybersecurity risks and generally require customers to divulge their private personal information to gain system access, which raises privacy concerns. To date, the migration away from cash has largely been in favor of traditional noncash payment systems; however, some observers predict new alternative systems will play a larger role in the future. Such alternative systems aim to address some of the inefficiencies and risks of traditional noncash systems, but face obstacles to achieving that aim and involve costs of their own. Private systems using distributed ledger technology, such as cryptocurrencies, may not serve the main functions of money well and face challenges to widespread acceptance and technological scalability. These systems also raise concerns among certain observers related to whether these systems could facilitate crime, provide inadequate protections to consumers, and may adversely affect governments' ability to implement or transmit monetary policy. The potential for increased payment efficiency from these systems is promising enough that certain central banks have investigated the possibility of issuing government-backed, electronic-only currencies—called central bank digital currencies (CBDCs)—in such a way that the benefits of certain alternative payment systems could be realized with appropriately mitigated risk. How CBDCs would be created and function are still matters of speculation at this time, and the possibility of their introduction raises questions about the appropriate role of a central bank in the financial system and the economy. If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society. Proponents of reducing cash usage (or even eliminating it all together and becoming a cashless society) argue that doing so will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy. Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system's vulnerability to cyberattack, and reduce personal privacy. Based on their assessment of the magnitude of these benefits and costs and the likelihood that market forces will displace cash as a payment system, policymakers may choose to encourage or discourage this trend.