us and europe in the second half of 2007 spilled over onto new zealand shores instantly. the spread between local short - term interbank interest rates and expectations of official rates rose, reflecting the increased premium on liquidity worldwide. however, although there was a degree of friction in trading conditions, money generally continued to flow. as a precaution, the reserve bank introduced a range of measures to expand the scope of our money market operations, along the lines of those taken by central banks elsewhere, in order to ease the liquidity pressures that had emerged in the local interbank market. as the baker and rosnick ( 2008 ). international turmoil continued into 2008 and deepened, we broadened our liquidity facilities further, primarily as a precaution to ensure that the banking system could handle any additional liquidity pressures were they to arise. the international financial turmoil arrived at a time when a number of local finance companies were already under pressure, largely due to credit weaknesses specific to that sector and to particular institutions. the failure rate in the non - bank deposit - taking sector increased as funding became more difficult to obtain. however, the solvency of the core new zealand financial system was not in doubt, and still is not. we stepped up our usual prudential supervision activities with banks, both to increase the chances of detecting problems and to ensure that banks themselves were doing everything they could to mitigate their liquidity and other risks. table 1 lists the major changes to reserve bank ’ s liquidity facilities and liquidity management processes to date. 2 table 1. changes to new zealand liquidity management arrangements announcement date measure 23 aug eligibility of new zealand bank bills for acceptance in the overnight reverse repurchase facility 7 may eligibility of aaa - rated new zealand residential mortgage - backed securities and new zealand wider government sector debt for acceptance in reserve bank liquidity operations extension of the maximum term of the overnight reverse repurchase facility from one day to 30 days 9 oct eligibility of residential mortgage - backed securities in reserve bank liquidity operations prior to the securities receiving formal ratings 29 oct establishment of reciprocal currency swap line with united states federal reserve 7 nov introduction of term auction facility for injection of cash for terms up to 12 months introduction of reserve bank bill tender 12 dec eligibility of highly rated new zealand corporate securities and new zealand dollar asset - backed securities in reserve bank liquidity operations the australian and new zealand governments also introduced guarantees of bank liabilities around the time that they were introduced offshore. in the new zealand case,

emergency offline backup payments, and privacy and autonomy in savings and payments. these benefits of cash have so far been not well replicated by electronic money in commercial banks. figure 1 : new zealanders ’ use of cash ‘ over the last seven days ’ is declining share of survey respondents 50 % 40 % 30 % 20 % 10 % 0 % no response more than 20 11 - 20 7 – 10 3 – 6 1 - 2 not at all never use cash - 10 % change source : reserve bank ( 2019b ). cash and covid - 19 covid - 19 has also highlighted the important role that cash plays in times of economic uncertainty. during the weeks leading up to the march 25 pandemic lockdown, new zealanders demanded an unprecedented amount of cash, with $ 800m of bank notes issued in march alone ( compared to $ 150m in march 2019 ). these bank notes have not yet returned to the banking system, meaning they are likely still being held by the public. since then, cash in circulation has continued to increase, growing by about 15 percent year on year during the second quarter of 2020. many other countries have also experienced increased demand for bank notes during the pandemic, as a store of value and a back up method of payment ( figure 2 ). 7 it is not unusual for cash holdings to increase during periods of uncertainty. in the lead up to the year 2000 wide - spread uncertainty of potential computing failures ( the so - called “ y2k bug ” ) resulted in a sharp increase in cash in circulation ( quarterly ). similarly, economic uncertainty during the financial crisis over 2008 - 2009 resulted in a rise in cash in circulation ( figure 2 ). smaller increases in cash holdings can also be seen with regional events such as the 2011 canterbury earthquakes. 7 see also auer et. al. ( 2020 ). figure 2 : cash in circulation continues to increase quarterly year - on - year percentage growth 25 % 20 % 15 % 10 % 5 % 0 % - 5 % - 10 % - 15 % australia canada nz norway sweden q2 / 2020 q4 / 2018 q2 / 2017 q4 / 2015 q2 / 2014 q4 / 2012 q2 / 2011 q4 / 2009 q2 / 2008 q4 / 2006 q2 / 2005 q4 / 2003 q2 / 2002 q4 / 2000 q2 / 1999 - 20 % uk notes : grey lines denotes ( in order ) the year 2000 ( y2k ) period, great