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Category: Money and Monetary Policy

A licence to print money: How often are new bank notes created?

Thursday, 1 Sep 2016 08:01:31

The RBA maintains a contingency stock of banknotes to respond to fluctuations in demand.

Australia's next generation of bank notes has been released into circulation today.

It's the third major overhaul of Australian bank notes:

But this is not the first time new money has been printed in the past three decades. It's actually a pretty constant process.

So how often is new money issued?

The RBA's head of note issue, Michael Andersen, said the average bank note only lasts about eight years before the ink wears off or it becomes damaged and has to be replaced.

But some denominations wear out faster than others.

"The fives have a shorter life because they're treated more roughly than the 50s," he said.

"You tend to shove a five in your pocket, but you put a 50 in your wallet."

On top of replacing damaged stock, the RBA must keep up with a growing demand.

"Demand for bank notes is increasing at a fairly constant rate of 5 to 6 per cent across all denominations," Mr Andersen said.

"The economy is growing all the time and the number of people is increasing all the time so the demand for bank notes is increasing."

The RBA also maintains a contingency stock so they can quickly respond to surges in demand and seasonal fluctuations.

For example, when the global financial crisis hit, the demand for bank notes grew so additional notes were released.

"We maintain a contingency stock so rather than having fluctuations in demand that mean we have to stoke up the print works, we make sure we have sufficient stock to smooth out demand," Mr Andersen said.

"When things quietened down a bit they came back to us."

How long will it take to replace the old generation of bank notes?

The RBA still encounters paper notes that have been in circulation for decades, so it could be quite a long time before every single note is replaced with the more secure modern version.

But Mr Andersen said the majority will be replaced quickly as people withdraw new notes from ATMs, receive them as change from shops and old ones are handed in to banks.

In preparation for September 1, the Reserve Bank has distributed about 10 million new $5 notes to banks across the country.

"It's not as though we open up the gates [on September 1] and the trucks go out. They've been going out for the past two weeks," Mr Andersen said.

The $10 note is the next to receive a makeover, with the new design expected to be released late next year.

The $20, $50 and $100 will follow, at a rate of roughly one release per year.

External Link: RBA tweet: Tilt the #new5 banknote to see the Eastern Spinebill move its wings. See it from 1 Sept

What happens to old bank notes?

Banks are always checking the notes they receive and any deemed unfit for circulation are returned to the RBA.

They are shredded into confetti-like pieces then passed through a machine that melts them and turns them into pellets.

Those pellets can be recycled into building components, plumbing fittings, compost bins and other products.

"When they return an unfit bank note, we issue a new bank note to replace it," Mr Andersen said.

How much does it cost to print a bank note?

The RBA wouldn't reveal the cost of production because it's considered commercial in confidence.

The facility that prints Australia's bank notes, which is a wholly owned subsidiary of the RBA, also prints and sells bank notes to other countries.

It also prints Australian passports.

But one thing we do know is that $37 million was spent on designing and testing the new generation of banknotes.

Each note is made up of 19 complex layers and measurements are discussed in microns — one thousandth of a millimetre.

AustraliaPlus


 

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