The lifecycle of a banknote

Best designers and engineers control the process of their manufacturing. They combine the symbolism of ancient cultures and space-like innovations. And at the same time, we encounter them every day. We exchange them, rumple them… These are banknotes, and it turns out that their life cycle is much more fascinating than the life of a credit card in your wallet.

Money printing: do it on your own or outsource

It all begins at specialized enterprises. They can be located inside or outside the country, be state-controlled or independent organizations. Some countries support domestic production of money. For example, all US dollars and cents are produced exclusively within the country, from where they spread around the world. On the other hand, euro banknotes are made in different states of the European Union at the ECB-certified enterprises.

Others do not have sufficient capacity to organize the high-tech production. Having no choice, they solve this problem as best as they can. For instance, Denmark prints (1) its banknotes in Finland for the sake of cost-saving. The Bulgarian National Bank organized (2) a Bulgarian-based joint venture with an independent French security printing company, Oberthur Fiduciaire. And crisis-ridden Venezuela has (3) to buy its Bolivar abroad and deliver the bills by dozens of aircraft.

How much time does a bill in your wallet have left?

Once printed and released for free circulation, paper money is hard to trace. Researches on the lifecycle of banknotes are rather complex and therefore can only be performed by central banks (for example, the Bank of the Netherlands and the Bank of Israel have conducted such studies). However, there is a general trend. As a rule, the larger the denomination of a banknote, the longer it serves. German Bundesbank tells (4): “The duration a banknote is in circulation usually depends on its face value. The more common banknotes with smaller denominations (5 euro, 10 euro, 20 euro, 50 euro) usually circulate for between one and four years. Banknotes with larger denominations (100 euro, 200 euro, 500 euro) can sometimes even be in circulation for much longer than ten years.”

Several years is quite a short time from the human point of view. But think of how resistant a piece of paper should be to survive this period. If we draw an analogy with people, physical tests to which banknotes are exposed are comparable only to the work of professional athletes or heavy factory workers. Not every man can withstand such exertions. However, banknotes can – their colors don’t fade away and they are still recognizable even at the end of their lifecycle. But why?

Thomas Savare, the CEO of Oberthur Fiduciaire, explains (5) that “banknote paper is very specific one, only used for banknotes, and manufactured by extremely niche suppliers who will only sell to recognized banknote printers (state printers or private printers). The same goes for the ink, which is made exclusively for banknote printing. The ink is resistant and has integrated security features, to be long lasting. You won’t find these requirements anywhere else in the printing industry. It’s very unique – from the holograms designed for banknotes to the threads specifically designed to be incorporated in the banknote paper.  The entire supply chain is dedicated to this industry and that’s a large part of the security of a banknote.”

When money gets into unsavory hands

Banknotes pass through a myriad of hands throughout their life. Pick any bill from your wallet and try to imagine what it could tell us: a child buying an ice cream; a famous businessman purchasing something small; a student keeping the crumpled banknote in his pocket along with his keys and smartphone; an old woman who buys a couple of apples at the corner… this story could become a bestseller! However, sometimes this hand-to-hand chain leads to a destination that is not quite good. Not only honest people need their banknotes. Counterfeiters still use paper money to produce fakes.

The mere fact of having such criminals is not surprising. Fraud was born with human society, and began to gain momentum in the Middle Ages. However, any action gives rise to opposition, and already then monarchs began to actively fight money crimes.

An outstanding example is Henry the First of England (c. 1068 – 1 December 1135). Apparently, he was not inclined to justify frauds of his subordinates with titles and fair names. Once, on the Christmas evening of 1125, he called owners of all the English mints to Winchester Castle. The guests were supposed to prove purity of their coins. The total number of invited people turned out to be about one and a half hundred. Well, not everyone managed to get off with a whole skin, as 96 guests left Winchester one-handed.

Of course, no one cuts off hands of counterfeiters now, but the punishment for them remains quite severe – from administrative fines to imprisonment. In addition, the life of modern criminals is complicated by the fact that modern banknotes are incredibly difficult to forge. Nobody will reveal the process of securing banknotes step-by-step. However, Thomas Savare is ready to lift the veil (6) a bit:

There can’t be only one security feature that prevents counterfeiting. For us [Oberthur Fiduciaire], we use a collection of different barriers to fight potential forgers. There are a lot of technologies used to make the paper itself, the threads, the fibers, the printing techniques… It’s a very thorough combination of different security features.”

The circle of life

Paper money serves us even after they are destroyed. After a bank has accumulated a sufficient number of shabby notes, it transfers them to a special processing enterprise. In turn, they recycle bills into fertilizers, stationery, clothes and other items. For example, Reserve Bank’s Kerala, India, has found an interesting way to get rid of old banknotes. It sends them to a wood processing enterprise, which produces hardboards. PM Sudhakaran Nair, general manager of the factory, is apparently pleased  (7) about this, even though there are some challenges:

Previously RBI was just burning it and now we are able to use. We have to be careful about the percentage of the pulp from old currencies we use. If we get that wrong, the end-product will be a waste”.  It turns out that the production, circulation and recycling of banknotes together form a true circle of life: you can buy these goods, made of old banknotes, for the same paper money!

Banknotes: innovative, secure and… with a story behind

Each of the bills that you have ever held in your hands is not just a piece of paper. Currency of any country is not only of financial value, but can tell its own story. Together with the national symbols depicted on them and high technologies crammed into every millimetre of paper, they provide our daily existence, always remaining a reliable means of payment. “Banknotes traditionally embody strong symbols and values, just as national anthems and flags do”, Thomas Savare explains. Apparently, bills and coins will be relevant for many years, because even now demand for paper money is growing (8) faster than the GDP of most countries.

1) http://cphpost.dk/news/danish-national-bank-to-outsource-currency-production.html
2) http://www.bnb.bg/PressOffice/POStatements/POADate/PR_S_GC_20131017_EN
3) https://www.frontpagemag.com/point/268603/starving-socialist-state-cant-afford-print-money-daniel-greenfield
4) https://www.bundesbank.de/Redaktion/EN/FAQ_List/Core_business_areas/cash_management_second_euro_banknote_series.html?docId=123148
5) https://www.thestrategist.media/oberthur-fiduciaire-banknote-printing-fiduciary/
6) https://www.thestrategist.media/oberthur-fiduciaire-banknote-printing-fiduciary/
7) http://indianexpress.com/article/india/demonetisation-old-notes-recycle-where-does-it-go-rs-500-and-1000-currency-4406437/
8) https://www.frbsf.org/our-district/about/sf-fed-blog/reports-death-of-cash-greatly-exaggerated/?utm_source=frbsf-home-sffedblog-title&utm_medium=frbsf&utm_campaign=sffedblog

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Categories: Economy & Finance

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