Today (Thursday 29th of October 2020) see the general release of the fifth and final Australian Dollar banknote denomination in the Reserve Bank of Australia’s Next Generation Banknote (NGB) series.
The programme was first publicly announced by the Central Bank in 2012, although initiated internally as far back as 2007 and has seen the annual release of a new polymer banknote denomination, starting with the lowest value NGB $5 banknote in September 2016. The banknotes comprise a ‘family’ of five notes, retaining the Head of State and famous Australians featured on the previous first polymer banknote series. This second series has introduced a clear top to bottom window and a unified range of sophisticated security features for both easy public recognition and advanced equipment authentication.
The top to bottom window, supported by the bank’s tag line ‘clearly different’ certainly makes for easily recognisable and harder to counterfeit notes, but also has required the wide scale adaption, or replacement, of most of the country’s cash handling equipment, from vending machine bill acceptors, to ATMs and note counters and sorters, a significant and costly task for the industry.
It is a testament to the advanced properties of the substrate and its security features that the first polymer banknote series, which was originally issued between 1992 and 1996, has largely stood the test of time, with counterfeit levels, although rising, still modest by international standards. This first series replacement in over 20 years has significantly raised the bar in counterfeit protection and should provide continuing safeguards for years to come.
Retaining the same polymer substrate, note dimensions and broad colour pallet has enabled both old and new notes to co-circulate. Unlike in some other countries where a new note introduction is accompanied by the formal withdrawal of the old issue, for now at least, both first and second issue Australian polymer notes freely co-circulate and in the main ‘old’ series notes are only removed from circulation when no longer fit for use.
While this has enabled the public to become familiar with the new note series over time and eliminated the costs and challenges of a concentrated banknote exchange programme, it does mean that new note saturation levels (the proportion of new notes compared to all notes on issue) remains relatively modest. For example, for NGB $50 notes – the main note dispensed from ATMs – first issued two years ago in October 2018, the new notes account for just under a third of all $50’s on issue. In fact, overall, currently all next generation banknotes on issue account for about 30% by number and just over 18% by value, so a significant proportion of the old notes remain at large.
While leaving the note issue to market demand has seen a more gradual introduction of notes, one of the consequences of the COVID 19 pandemic has been to see a significant spike in banknote demand.
When the first NGB note was issued in September 2016 total banknotes on issue stood at $70.9BN. This has grown by over $24BN (34.5%) in the past four years to $95.3BN at the end of September 2020, half of that increase occurring since March.
Banknote demand has been concentrated in the top two denominations – $50s (up $7.9BN in the past seven months) and $100s (up $4.4BN). With the spike being attributed to a mix of increased stock holding across the system – to minimise any logistics challenges in meeting demand – and a growth of public precautionary cash holding, this has both good and potentially bad implications for the increased saturation of new notes.
The $7.9BN increase in $50s on issue is equivalent to a 20% growth and as these are all now NGB notes this had led to a doubling of the $50 NGB note saturation level. By contrast, while $100s have also seen a significant rise, the $4.4BN growth is equivalent to a near 12% increase, these are all of the old type note. With these notes largely being held in stock, it will be interesting to see if this actually limits the short term uptake of the new notes and with that in mind NGB $100 saturation may get off to a rocky start.
Turning to the level of counterfeits reported by the Reserve Bank, a quick look at the graph shows a general trend towards fewer $50 counterfeits and an increase in counterfeit $100s. It is interesting to consider if this is just a case of counterfeit ‘inflation’ or whether the introduction of harder to counterfeit new $50s, but not until now $100s has had a material impact on which notes are forged.
Given that one of the key reasons for the new note design and introduction was an opportunity to refresh the security features of the note and reduce counterfeit risks, it will be interesting to observe whether demand for new notes and natural replacement alone will be sufficient, or whether a point will be reached when the Reserve Bank calls time on the first series notes still on issue.
Perhaps time to check under your floor boards and down the backs of chairs for those old notes!
The Blond Group is an independent specialist consultancy, research and project management practice focused on shaping strategic thought and executing operational change in the cash handling and payments world. Over the past four years we have worked extensively with one of Australia’s leading commercial cash handling banks supporting their part in the introduction of Australian Next Generation Banknotes.
The Blond Group managed many aspects of the complex programme of work bringing together cash handling equipment suppliers, cash management companies and other stakeholders to ensure the smooth introduction of the newly designed Australian currency.
As one of the largest commercial distributors of banknotes significant effort was also devoted to the new note issue, distribution and return for final authentication and destruction of the old series notes. This required significant co-ordination with the bank’s cash management company suppliers and secure frontloading at cash centres throughout the country to meet day of issue and subsequent demand.
The programme has included significant internal and external communication informing users of the banknote features, steps to identify genuine banknotes and for bank staff internal policies and procedures for banknote issue and return. The famous Australians that feature on each banknote were utilised to draw connections to important associations for the bank and the communities it serves.