Disaster Cash – The Importance of Physical Currency in a Crisis
A recent news article about the plan to phase out the USD $100 currency note reminded me of working with various companies and businesses calculating their disaster cash reserve needs. Typically, I have suggested at least part of the emergency cash stash be held in a variety of currency denominations, including the ubiquitous “$100 dollar bill.” In these efforts, I am occasionally asked; how much cash should our business have on hand during disasters? My typical answer is “it depends” (which is admittedly not very satisfying). I thought I would attempt to provide a bit more developed answer to this question in the following paragraphs.
Every traditional disaster preparedness expert recommends that you keep some tangible cash (currency) on hand (in a safe place) to help meet urgent and immediate needs during a crisis or disaster situation. The reason is fairly simple; there will be urgent expenses (i.e. materials and supplies, housing accommodations, transportation, food & water, etc.) for which invoicing or credit purchasing may not be an option. Furthermore, when the electricity is off, credit card terminals, ATM machines and bank computers will be unavailable. Even if supply stores are open, without electricity they will not be able to accept your credit or debit cards (and may have problems with electronic cash registers as well). In addition, depending on the resiliency of your support operations, employee expenses and support may be necessary in form of cash payments. Even direct deposit of payroll payments could be distributed.
How Much Cash/Currency?
There is obviously no single set amount of cash/currency which a particular business might choose to keep on-site under lock and key. The amount of currency to keep on hand (typically in a locked safe) varies by the situation for each company or business. The risk exposures, mission-critical operations, size, international and domestic operations and complexity of those business operations are all key factors in determining emergency cash requirements. I usually consul companies to use one, up to two weeks, of their typical weekly outflow “burn” (expenditures including mission critical purchases, payroll, etc.) rates, less mitigated expense items (e.g. lines of credit with vendors), but increased by “disaster” and exposure cash expense requirements (e.g. emergency supplies, anticipated executive kidnapping ransom demands, etc.) to reach an approximately cash-on-hand amount determination. Obviously, in each situation there should be adjustments for the unique aspects. For example, a company with a lot of sales representatives or executives traveling in high risk for kidnapping zones might keep additional cash on hand than would be otherwise warranted – likewise, a company that has multiple branch offices or highly resilient EFT networks with MOUs in place for transfers during emergency events might reasonably elect to keep less currency on hand. Furthermore, a U.S. based company with extensive operations abroad might keep some of the cash in the form of foreign currencies. Of course, keeping large amounts of cash on the company premises or other nearby “safe-places” creates specialized security and accountability needs which need to be deployed and met.
The New Forms of Cash and Crisis
Of course there are other “crisis” situations where having immediate and deliverable cash on hand provides you with options, especially when there is not enough time to wait for the banks to open. Emergency cash for executive kidnapping ransom is often needed quickly and at non-banking hours. The recent rise in hackers holding data and IT systems hostage with demands for ransom may give businesses, schools, health care facilities and public sector agencies pause about keeping cash on hand.
Recently, a large Los Angeles hospital chose to pay hackers who were holding its computer network hostage. This was a move its chief executive said was in its best interest and the most efficient way to end the problem. Hollywood Presbyterian Medical Center showed uncommon transparency in saying Wednesday, February 17 that it paid the 40 bitcoins — or about $17,000 — demanded when it fell victim to what’s commonly called “ransomware.”
This raises the question about whether to keep Bitcoins on hand as well as currency. It is unclear whether Bitcoins would be a usable currency to make purchases, but I suspect it is not yet time to convert all of your emergency cash stash into Bitcoins. However, some of the dangers from criminal elements (kidnapping and ransomware being examples of coping with them) suggest that having some Bitcoins could be prudent preparedness.
“Criminals like the virtual currency because it can be held in a digital wallet that does not have to be registered with any government or financial authority — and because it can be easily exchanged for real money. At the moment, a single Bitcoin can be sold online or on the street for around $290.”
In fact, speaking of crises and disasters – Bitcoins are often correlated with discussions of criminal elements:
“In the wake of the arrest of Vincent Lauton, with regard to his alleged links to multiple bomb threat made across Australia, Europe, the US and Asia, an investigation has revealed something of an industry taking hold in the Dark Web. The investigation has found that bomb threats against British schools, hospitals and airports can be bought on the Dark Web for as little as £5 each, and executed at the rate of 20 per hour. French detectives believe that these services can be bought from a hacker collective, the Evacuation Squad, by paying the fees in Bitcoins. Each of the bomb threats is a hoax; it seems that the Evacuation Squad has targeted students who simply want to ‘get out of school’ and offers them its services, contacting them through an undisclosed open-messaging system. Once the services are purchased, phone-calls are made to the selected targets, using voice-disguising techniques, to make the threats. In the current state of heightened awareness of potential terrorist attack, the majority of these threats have been taken seriously and premises have been evacuated.”
Disasters happen, and having ready-at-hand cash currency can be vital to managing the event. If you live in vulnerable locations, a hurricane, flash flood, blizzard or tornado could knock out the power grid in the region. Electricity and all systems dependent on that electricity could be down for days or weeks and you may find that goods and services are on a “cash-only” basis. The questions are: How much cash, and where to keep the cash safe until it may be needed?
Business Continuity Planning
Emergency cash/currency holdings is an important but little mentioned aspect of business continuity planning. It’s not a matter of if a disaster occurs where you could need cash – it’s simply a matter of when. Got cash?