SMI Approach

In order to define the key requirements for a new family of banknotes, it is first necessary to review the existing series. We liaise with a variety of stakeholders, including individual discussions with the Central Bank, relevant government agencies, police, and representatives from the commercial banking and retail sectors. We consider:

• A review of the existing counterfeiting threat – real and perceived -  including an assessment of:
  • Current levels and methods of counterfeiting – and possibly fraudulent alteration (denomination upgrading) by type and denomination.
  • National and international trends in counterfeiting
  • The susceptibility of each denomination to counterfeiting
  • A technical evaluation of counterfeits seized or withdrawn from circulation.
  • Effectiveness of existing security features and methods of detection (retail or banking sector interception).
  • Likely sources/provenance of counterfeits
• Public education programmes and their effectiveness, including which banknote features are particularly ‘noticed’ by the public
• The role of national law (deterrence effect)
• A review of the durability of banknotes in circulation with particular emphasis on:
  • How long banknotes per denomination remain in circulation before being withdrawn
  • Current fitness standards established by the Central Bank
  • Reasons for withdrawal of banknotes from circulation
  • Soiling levels/ general wear and tear per denomination
  • Difficulties experienced from poor quality banknotes e.g. increased counterfeiting, and cash handling inefficiencies

It is essential to consider the ways coins and banknotes circulate through the national cash cycle when considering banknote designs and specifications as a key objective is to ensure that they circulate more efficiently, thereby lasting longer and being more cost-efficient for all parties, including financial institutions and retailers.

Looking at cash circulation within the economy also enables us to identify how and where counterfeits enter the cash cycle, and how counterfeiting in general can be prevented. By considering the different circulation patterns of coin and banknote denominations, the cash cycle review highlights any structural anomalies so that, during a new banknote design process, a more efficient banknote denominational structure could be considered, if appropriate. This could include coining the lower denominations, or using more durable substrates whilst introducing higher banknote denominations for use in ATMs etc.

Additional elements of the cash cycle considered include:

• an analysis of the existing denominational structure, including how long banknotes per denomination remain in circulation before being withdrawn
• the local purchasing power of each denomination compared with per capita earnings
• ATM usage
• the regulatory environment governing the recirculation of cash by the commercial sector
• the level of processing carried out by the Central Bank and the commercial sector
• the ways cash flows through the economy from party to party, and the drivers governing the daily distribution patterns

With the current situation and trends identified, it is now time to explore in some detail the Central Bank’s requirements for each denomination within the currency (e.g. higher security to top denominations; machine-readability and security for ATM denominations; appropriate security and increased durability for low denominations)balancing these with the various technologies available in the industry and global best practise.

Aesthetics

There are numerous issues which will impact a Central Bank’s aesthetic requirements, including culture, history, aspirations, regional trends and the popularity of the current designs with the public. SMI advise on priorities and can assist with:

• the selection of aesthetic design content and artwork
• print appearance – quality and method of engraving, tonality colour harmony etc.
• paper appearance  - quality of watermark (multi-tonal, electrotype, three dimensional), thread selection, machine readability etc.

Durability

Equally as important as the look, feel and security elements of a banknote series is the ability for it to last as long as possible in circulation. SMI will assist in identifying durability requirements by considering:

• Note cleanliness, including a review and advice on the present clean note policy, which may need revising for both political and practical reasons
• Current circulation statistics
• A review of the options available to the Central Bank with respect to ‘real’ durability, cost-effectiveness and impact on security, of the following substrates and options:
• Polymer
• Durable cellulose papers and strengthening agents
• Hybrid papers
• Post-print varnishing

Equipment

A central bank’s requirements are also naturally aligned to the equipment available – both in terms of what is currently used and what is available in the market. SMI can provide a through overview of current technologies and equipment and work with the Central Bank to:

• review the current infrastructure
• identify any current issues in the processing and dispensing of banknotes
• examine both the high speed central bank processing and the commercial sector processing requirements

With its comprehensive knowledge of the know-how available in the banknote security industry, SMI can provide a detailed independent review of current trends in banknote substrate and printing technologies. Each of the following would be explored in relation to current practises and against the requirements identified earlier in the approach:

• Paper technology, with particular focus on:
  • Generic specification, including strength (e.g. mean double folds), opacity, weight
  • Threads
  • Foils
  • Coatings
  • Varnishes
  • Treatments
  • Fibres
  • Machine readability
• Print technology, exploring:
  • Off-set
  • Screen
  • Intaglio
  • Letter press
  • Varnishing
  • Finishing (sheet and single note)
  • Sequential versus replacement numbering schemes
  • Machine readability

Given the huge variety of banknote security features available on the market, SMI’s knowledge and objective advice can be invaluable to ensure the most appropriate features are selected to meet the requirements identified for each Central Bank. These are then examined again in the context of the cost, supplier availability, and the future implications of using a feature/ technology with IPR, all from a position of independence of any brand or supplier.

The range of security features available is extensive and can be categorised in various ways:

• According to the type of threat (e.g. nuisance/ opportunistic or serious volume counterfeits; photocopy/ ink-jet printer/ litho printing etc.)
• The way in which the features themselves can be detected:
  • Level 1 – By human senses without equipment, intervention or stimulation
  • Level 2
    • 2.1 – Via human judgment through hand-held devices or external stimulation
    • 2.2 – By portable hand-held solutions with a yes/no decision
    • 2.3 – Automated detection
  • Level 3 – Dedicated to central banks Banknote processing
  • Level 4 – Forensic – laboratory test & expertise
• The ways in which the features themselves are incorporated into the banknotes and banknote paper.
  • Paper and polymer based features – threads, watermarks, iridescent workings, fibres, paper tints etc.
  • Print based features – inks, iridescence, (machine readability) etc.
  • Surface Effect Features (SEF) – D-OVDs (holograms), OVI® etc
  • Others – micro-perforation

Each category is reviewed with the Central Bank to assess the following against the needs and requirements identified in the previous steps of the approach:

• Appropriate anti –counterfeiting effectiveness
• Appearance and aesthetic value
• Ease of production and incorporation
• Compatibility with existing designs
• The cost / benefit analysis of any design change to incorporate, or remove, any security feature and the potential counter-effect against the established threats
• Feature or technology availability in terms of  Intellectual property and licensing
• Proven and existing references

Current best practice for procurement of banknotes requires the establishment of mutually agreed contract terms between the Central Bank and its nominated supplier, and the achievement of transparency throughout the commercial process. SMI provides support and advice on these issues by drawing on its extensive commercial and technical experience in preparation of supply contracts for both buyer and seller.

Typical areas covered by SMI in such a mandate would include, but are not limited to:

• Preparation of the RFP
  • Confidentiality and non-disclosure requirements
  • Liability clauses
  • Payment terms
  • Proofing – the processes and the Central Bank’s expectations, comparison with production notes, degrees of acceptable variation
  • Ownership of design, origination and production tooling
• Technical specifications for print, paper and finishing, including specimen, numbering sequences, replacement numbering schemes and packing specifications
• Tendering procedures, including pre-qualification criteria, based on:
  • The number of customers per supplier
  • References from other Central Banks
  • Experience of supplying banknotes to the export market
  • Number of factories/ number of printing lines
  • Equipment profile
  • Machine availability
  • Tenders won in the last 5 years: value and volume
  • Financial criteria
• Intellectual Property
• Licensing and cross-licensing
• Insurance
• Paper supplier(s)
• Feature availability (e.g. availability/ market installed-base  of relevant equipment needed for feature incorporation)
• Third-party supplies of defined component features (e.g. D-OVDs, if required)
• Quality assurance provisions
• Testing standards and benchmarks
• Inspection – critical and major defects, pass standards
• Subcontracts and places of manufacture
• Control of origination materials
• Packing and shipping procedures and Documentation
• Education campaigns and media on new series

Improvements in digital reproduction technologies both in terms of quality and cost have resulted in a higher frequency of counterfeiting from a broader section of the population. To counter this threat, Central Banks are changing their banknote designs more frequently – often every 5-7 years – and incorporating new and ever more sophisticated security features. This increase in design and product complexity, coupled with the pressure from the printers to specify their proprietary features, has made it more difficult for the Central Bank to ensure that their banknotes comply with the agreed specification and procurement requirements set out in the tender documents, and meet their needs rather than those of the supplier.

Compliance model

Against this background SMI has developed a compliance model which gives control back to the Central Bank, looking at ensuring supplier performance in terms of conformance and adherence to specifications.

SMI does this via a comprehensive testing and analysis programme which offers the following benefits to the Central Bank:

• Independent physical, chemical and visual audit of the banknotes to ensure compliance with the tender specification, and conformity between design, proof and production stages.
• Independent testing to ensure compliance with any additional technical criteria provided by the supplier.
• Independent audit of supplier performance against contract, with a focus on on-going compliance.

Where appropriate all testing is carried out in accordance with BS or ISO standards and using independent laboratory resources.

Public Education

Equally as important following the implementation of a new banknote series is educating the public and commercial sectors. SMI can provide advice on the development of the media resources needed to do this effectively, with the intent that any design or specification changes are communicated in time to the relevant parties within the cash cycle so that they can reconfigure their cash handling equipment, from back office sorters to self-service recyclers to take account of the new design. Similarly, SMI can advise on managing public education campaigns, so that everyone knows what to expect and how to differentiate between real and counterfeit notes.