Statement of Intent 2006–2009 – Objectives

To meet the currency needs of the public by ensuring the supply and integrity of bank notes and coins.

Statement of Intent 2006–2009 – Initiatives and strategies

• Implement the modernisation of the ‘silver’ coins.

• Improve the forecasting of currency demand.

• Report on currency trends and electronic-money developments.

Box 4: 'Silver' coin project

On 31 July 2006, the Bank issued new, smaller, lighter 10, 20 and 50 cent coins, and started withdrawing the corresponding old cupronickel coins. The old 5 cent coin was withdrawn and not replaced. The Bank prepositioned about 80 million new coins at bank branches throughout the country prior to 31 July to assist a speedy changeover. The Bank also conducted a highly effective communications programme to inform the public about the new coins and to encourage the return of the old coins.

The old coins were declared no longer legal tender with effect from 1 November 2006. The Bank has recovered 350 million, or 2,280 tonnes, of the old coins. This is about one-third of the coins issued since decimal currency was introduced in 1967. These coins were sold to an overseas company, which melted them down to make new blank coins for other countries.

The income from the sale of the old coins not only covered all the costs of introducing the new coins, but also resulted in a surplus for the project overall. The substantial rises in copper and nickel prices in recent years mean that the new, smaller, plated-steel coins are expected to generate annual savings for the Bank of about $4 million compared with what the cupronickel coins would have cost.

The Bank won two valued awards for the ‘silver’ coin project. The Association of Blind Citizens of New Zealand presented the Extra Touch Award to the Bank in recognition of its commitment to ensure the new coins would be easily identifiable by blind and visionimpaired people. The Public Relations Institute of New Zealand judged the silver coin communications programme the national winner in the Government Public Relations Programme category of their annual awards.

RBNZ annual report 2006 2006

Currency Operations

The Reserve Bank is responsible for supplying bank notes and coin; this includes arranging for production and maintaining sufficient stock to meet the needs of the community.

The value of bank notes in circulation continues to grow steadily; in the 12 months to 30 June 2006, the increase was 5.7 percent. There were 114 million bank notes in circulation at the end of June this year.

We finalised preparations for the modernisation of the ‘silver’ coins on 31 July 2006, when smaller, lighter 10, 20 and 50 cent coins were introduced. A three-month transition period has since been running, in which the old and new coins can be used as legal tender, allowing old coins to be withdrawn from circulation – including the 5 cent coin, which is not being replaced – by 31 October.

Meanwhile, the demand for coin, in contrast to bank notes, has declined during the financial year. The Bank has received 1.2 million coins more than we issued, compared with net issues of 31 million last year and 55 million the previous year.

It is apparent that the announcement in March 2005, that the Bank intended to demonetise existing low value coins, has had an impact on the normal ‘one-way’ flow of these coins from the retailer to the customer and then into people’s stocks of coins. Demand for newly minted ‘silver’ coins from the Reserve Bank declined as the public became motivated to access their hoarded stocks.

A key objective of our cash operation is to ensure the integrity of bank notes in circulation; this includes both quality and authenticity. During the past 12 months, 60 million bank notes, or 51 percent of notes in circulation on average, have been ‘processed’ by the Bank. This involves running notes through sophisticated machinery to check for counterfeits and poor quality notes.

The Bank commissioned new bank note processing machinery with upgraded detectors using digital scan technology. This ‘state of the art’ machinery has been manufactured to exacting requirements for New Zealand’s bank notes.

Statement of Intent (SOI) 2005-2008 – Objective statement

To meet the currency needs of the public by ensuring the supply and integrity of bank notes and coins.

SOI 2005-2008 – Initiatives and strategies

• Implement the modernisation of the ‘silver’ coins.

• Improve the forecasting of currency demand.

• Report on currency trends and electronic money developments.

• Commission a state-of-the-art bank note processing machine for checking quality and autheticity.

RBNZ annual report 2005 2005

Currency Operations
 

The Reserve Bank has the sole right to supply the nation with legal tender bank notes and coins.
 

As at 30 June 2005, there were 110 million bank notes and 1.2 billion coins in circulation with a total face value of $3.2 billion. This is an increase, by value, of 6.3 per cent compared with June last year. This increase has occurred despite the growth in alternative electronic methods of payment for goods and services.
 

Apart from ensuring supply, a key objective for the Bank’s cash operation is to maintain the quality and integrity of bank notes in circulation. In the year to 30 June, 60 million bank notes (approximately 55 per cent of all notes in circulation) were returned to the Bank as either pre-sorted as unfit for circulation, or as surplus to requirements (such as post-Christmas). We destroyed, as unfit, 16.9 million bank notes or 15.4 per cent of the average number of notes in circulation in 2004/05. Also during this period we detected just 19 counterfeit notes compared with 28 in the previous 12 months.

Demand for coin, particularly since late last year, appears to have been affected by the Bank’s announced proposals for modernisation (see box 2). In the year to 30 June 2005, our net issues of coin totalled 31.3 million compared with 55.3 million in the previous 12 months. Issues of new 5 cent coins declined from 28.5 million to 11.4 million and for 10 cent coins from 12.2 million to 5.7 million.
 

The Bank also sanctions the issue of commemorative coins which are marketed by New Zealand Post. During the year a number of theme coins were issued, including the Little Spotted Kiwi, the Fiordland Crested Penguin, the Anzac anniversary and the Lions Rugby Tour. Income received by the Bank exceeded budget but was significantly less than last year, when the very successful Lord of the Rings series was issued.

RBNZ annual report 2004 2004

Currency operations

The Reserve Bank supplies the nation’s currency. We do this by selling bank notes and coins at face value to the banks, which the banks then issue to their customers. In addition, whenever we process bank notes, we check for forgeries and replace bank notes that are damaged or of an unacceptable quality.

As at 30 June 2004, 103 million bank notes and 1.1 billion coins were in circulation (ie, held by the public and the banks), with a total face value of $2.9 billion, which is up 4 per cent on the previous year. However, during the same period, the value of currency held by the public increased by 8 per cent. The reason for the 4 per cent difference is that the amount of cash being held by the commercial banks declined, despite increased public usage. At the end of June this year, the cash held by the banks was 12 per cent below the same time last year. Commercial banks are now managing the distribution of cash within the community more efficiently than previously.

During 2003/04, we machine processed 66 million bank notes, which is 64 per cent of the total in circulation, destroying 14.8 million as unfit and detecting just 28 counterfeits. The cost of replacing unfit bank notes and meeting growth in demand totalled $1.3 million in 2003/04, compared with $2.2 million the previous year. The lower cost was primarily due to the issuance of fewer new $20 bank notes at Christmas. This was because we had available higher stocks of used bank notes. The quality of our polymer $20 bank notes is holding up remarkably well. In the year to 30 June, we destroyed just 16 per cent of $20 notes in circulation, compared with an annual destruction rate of close to 60 per cent when we had paper bank notes.

Demand for coin continues unabated. During the year we issued 55 million coins, at a cost of $4.1 million, of which 87 per cent were lower value ‘silver’ coloured coins. As mentioned in the 2003 Annual Report, we are reviewing our silver coinage both in terms of their size and cost.

Other 'currency'

Aside from providing the bank notes and coins that New Zealanders use day-to-day, the Reserve Bank also provides small numbers of special commemorative coins that typically are of interest to collectors. These coins have their own special designs and often are made of precious metals. Their marketing and promotion has been outsourced to the Stamps Division of New Zealand Post, as there are significant synergies in the production and marketing of collectors’ stamps and coins with linked themes. However, the Bank still retains the final say on the theme and design of the coins.

During the past year, New Zealand Post has marketed a number of commemorative coins, the highlight being a Lord of the Rings series. Income from commemorative sales exceeded expectations.

In addition, from time to time, the Reserve Bank has to deal with commercial interests wanting to use reproductions of bank notes or take images from currency to promote their products or services. Mostly this does not cause problems, but sometimes reproductions are sufficiently similar to genuine bank notes or coins that consumers might mistake them for real money. When that happens, the Reserve Bank is required to intervene to protect the public.

Rather than imposing blanket or ad hoc restrictions, we specify in detail what we are prepared to allow, the details of which are available on our website. Anyone intending to make or issue anything that looks like a bank note or coin should check these requirements very carefully and get legal advice.

Financial performance

RBNZ annual report 2003 2003

Currency

By statute, the Reserve Bank has the sole right to issue bank notes and coins in New Zealand. During the year in review, one of the issues faced was the increasing tendency of the ink to fade on circulating $5 bank notes. The $5 bank note gets used more often than other bank notes, especially in retail transactions, and it suffers more wear and tear. In response, the Reserve Bank increased the rate at which poor quality $5 notes were withdrawn and replaced with new ones. The Bank issued 6.4 million new $5 notes in 2002/03 compared with 2.3 million during the previous financial year. This should see the quality of $5 notes in circulation improve. Since the introduction of polymer bank notes the number of counterfeits detected has been extremely low by international standards. During the review period, we found 33 forgeries. This is just 0.31 bank notes per million in circulation (1.2 in 2001/02), compared to  35 notes per million in the United States and 20 notes per million in Europe. During 2002/03, bank note expenses exceeded budget expectations by $0.6 million or 38 per cent. This was due to greater demand than anticipated at Christmas, the proactive issuance of more $5 notes and a decision by one bank to replace $20 bank notes with $50 bank notes in some ATMs. We issued 49 million new coins during the review period at a cost of $3.6 million, with 80 per cent of this expenditure for  silver-coloured coins. These are minted using a cupro-nickel compound that is comparatively expensive. During 2003/04, the Bank will investigate the cost benefits of using cheaper alloys that are now often used overseas for low value coins. Looking at the longer-term trend, the number and value of bank notes and coins in circulation in New Zealand continues to increase, as described in box 2.

Demand for cash still growing

In the mid-1990s, some pundits said that in the digital age cash would soon be obsolete and all transactions would somehow be electronic. Various stored-value cards were promoted as heralding the cashless society. In fact, since 1996 bank notes in circulation have increased 60 per cent by volume and 74 per cent by value, while coins in circulation have increased 33 per cent by volume and 48 per cent by value. In the past 12 months, the combined value of bank notes and coins in circulation has increased by 5.4 per cent. Currency remains the public’s favoured form of payment for small day-to-day transactions. This is because cash remains easily recognisable, fully negotiable, convenient and anonymous. International research suggests that typically cash is used for about 70 per cent of all transactions by volume. The New Zealand Bankers’ Association reports that there were 1,889 ATMs dispensing cash in New Zealand in 2002, an increase of 24 per cent since 1998. It seems that the saying “Cash is King” will remain true for many years to come, at least for small day-to-day transactions.

RBNZ annual report 2002 2002

Currency

The Reserve Bank Act gives the Reserve Bank the sole right to issue legal tender bank notes and coins in New Zealand, including determining their design and composition. The value of bank notes and coins held by the public continues to increase. During the year under review it rose by 8 per cent, to reach $2.7 billion as at 30 June 20022. So far, electronic banking has had little impact on the volume of cash used in New Zealand. However, the way the Reserve Bank meets the currency needs of the public has changed. The replacement of paper with polymer bank notes in 1999 (see box 2) has enabled the Reserve Bank to re-define its role in the cash distribution process. The greater durability and more effective security features of polymer bank notes mean that we no longer need to machine process bank notes on a regular basis. Since February 2001, we have required the commercial banks to re-distribute bank notes among themselves rather than through the Reserve Bank. Currency operating expenses, excluding the cost of issuing new currency, have fallen from an average of around $11 million per annum to $8.3 million in 2001/02 and an expected $6 million for 2002/03. These figures include some funding assistance provided to the commercial banks during the transition stage. As a result, the cost of issuing coins is now significantly greater than for bank notes. In 2001/02 we issued 44 million new coins at a cost of $3.1 million, compared with expenditure of $1.1 million on issuing bank notes. This reverses the usual pattern for central banks.

Performance of polymer bank notes

In May 1999, the Reserve Bank introduced polymer bank notes into New Zealand to replace paper bank notes. By March 2000, all denominations had been converted to polymer and, as of 30 June 2002, approximately 110 million polymer notes had been issued. The advantages of polymer bank notes are enhanced security features, greater durability, fewer environmental problems with recycling and, over time, cost savings. Our experience to date has borne this out. Counterfeits detected are well down. During the year under review we discovered just 72 forgeries compared with 156 in 2000/01, 950 in 1999/2000 and 401 in 1998/99. Most forgeries still turning up are of the old paper design. We are destroying far fewer worn out or damaged polymer bank notes than we did for paper. Annually, we currently destroy just 5.1 per cent of all $20 notes in circulation, compared with a previous annual destruction rate of 52.3 per cent for the paper equivalent. Of the small numbers of polymer bank notes returned to the Bank as ‘unfit’, almost all are torn or have suffered other physical damage, rather than being limp or dirty, which were the main reasons for destroying paper bank notes. The longer life of the polymer bank notes means significant savings. In 2001/02 the cost of issuing new notes was $1.1 million, compared with $3.1 million in 1996/97 and $2.2 million in 1997/98, when all notes were made of paper. This is in spite of polymer bank notes costing more to make and the increase in the number of bank notes in circulation.

RBNZ annual report 2001 2001

Currency

By statute, the Reserve Bank is required to provide the nation’s bank notes and coins. As at 30 June 2001, the total value of currency in circulation was $2.54 billion, which was 12 per cent higher than at the same time the previous year. Between May 1999 and March 2000, New Zealand’s complete range of bank notes was changed from paper to polymer. About 96 million polymer bank notes have been issued and it is now quite rare to find a paper bank note still in circulation. The introduction of polymer bank notes has been an outstanding success. The public have expressed satisfaction with the change, as reported in box 2. An additional benefit has been a marked reduction in attempts at counterfeiting. During the review period, we detected just 156 forgeries, compared with 950 for the same period in 1999/2000 and 401 in 1998/1999. Most forgeries still turning up are of the previous paper designs, and to date there have been no serious attempts at forging polymer bank notes. The polymer bank notes are also lasting much longer. Our expectation is that, though they cost about twice as much to print as paper bank notes, they will last four times as long. The $20 bank notes have now been in circulation for two years, and so far very few damaged bank notes have come back to the Reserve Bank. The Reserve Bank’s role in the daily ‘retail’ distribution of currency has been greatly reduced. Since the middle of 2000, the banks and security companies have been working together to re-distribute their cash among themselves, rather than using the Reserve Bank as a clearing-house. This change has resulted in the banks holding higher stocks of bank notes than previously, but generally distribution seems to be working well. As a result, our Christchurch and Auckland branches have been closed. We now operate out of Wellington only, in effect as a wholesale supplier, replacing damaged stock and meeting seasonal demands from our cash reserves.

Public opinion on polymer bank notes

In August 2000, the Reserve Bank’s special issue $10 millennium bank note went into general circulation. Then in late October and early November 2000, the Bank commissioned ACNielsen (NZ) Ltd to conduct a poll to find out how the public and retailers viewed the design and special security features of the $10 millennium bank note, the security features on other polymer bank notes and attitudes towards polymer bank notes in general. Among the findings:

• Sixty per cent of public respondents and 65 per cent of retailers indicated a preference or strong preference for the $10 millennium bank note over the normal $10 bank note.

• Seventy four per cent of the public and 90 per cent of retailers either preferred or strongly preferred polymer bank notes to paper bank notes. Polymer bank notes were perceived to be superior in quality.

• The special security features of the $10 millennium bank note were less well known than the standard security features of the ordinary $10 bank note. Members of the public were likely to take a suspicious-looking bank note to a bank for verification, whereas retailers were more likely to use the bank note’s security features for authentication.

These results indicate that polymer bank notes are well accepted among the public and retailers. They also indicate that people like the bright, innovative design features used in the $10 millennium bank note.

RBNZ annual report 2000 2000

Currency

Providing the nation’s currency is one of the Reserve Bank’s key statutory obligations. As at 30 June 2000, the total face value of bank notes and coins held by the public was $2.25 billion4, which was a 15 per cent increase over the previous 12 months. During the 1999/2000 financial year, most paper bank notes in circulation were replaced with new polymer bank notes. The design of these polymer notes was largely unchanged, but their security features were significantly upgraded. In the 12 months to 30 June 2000, over 80 million polymer bank notes were issued and we detected only one attempt at counterfeiting a polymer bank note. In comparison, over 900 forged paper bank notes were identified in the same period. Traditionally, the Reserve Bank has played a central role in the re-distribution of cash between commercial banks. This provided an opportunity to check bank notes for quality and authenticity. The introduction of polymer bank notes, with greater durability and better security features, means that there is now less need for us to continually check bank notes. The Reserve Bank has been encouraging the banks to develop their own procedures for checking and distributing bank notes. As a result, our Christchurch branch was closed at the end of June 2000 and the Auckland branch will cease operations on 17 November. The Reserve Bank will continue to have prime responsibility for the supply and integrity of bank notes. New bank notes will be issued to replace damaged bank notes and to meet peak demand periods, such as at Christmas and Easter. Suspect and unfit bank notes will be identified by banks and security companies and returned to the Reserve Bank in Wellington for checking or destruction. To assist this process, the Reserve Bank is leasing to security companies the processing machines that were located in our Christchurch and Auckland branches. These changes will in time provide cost savings for all concerned.

The millennium bank note

On 15 September 1999, the Reserve Bank unveiled the design of a special $10 bank note commemorating the new millennium. This was initially sold to the public as a collector.s item. Then in July 2000, we released a variant of this special bank note into general circulation to gauge the public.s reaction to its new security features. Modern scanning technology means that some traditional security features in bank notes are less effective than in the past. In particular, scanning technology means that faces and other visual details traditionally used as security features can now be replicated sufficiently accurately to deceive the eye. In response, the millennium $10 bank note incorporates two new security features that are world firsts and cannot be replicated by scanners. The bank note has a diffraction optically variable device, which is an aluminium coating in the shape of two silver ferns within the window area. This feature reflects rainbow colours when the bank note is tilted to the light. In addition, when the bank note is folded, so that the window is placed over the image of New Zealand on the back of the bank note, then the letters Y2K become visible.

RBNZ annual report 1999 1999

Currency

One of the Reserve Bank's key statutory obligations is to provide New Zealand's currency. The total face value of bank notes and coins held by the public was $1.96 billion as of 30 June 1999, which was a 7 per cent increase over the previous 12 months. This comprised around 70 million bank notes and 893 million coins. The Reserve Bank receives surplus cash from banks daily at our sites in Wellington, Auckland and Christchurch. The bank notes received are checked for authenticity, and damaged bank notes are replaced. We then reissue bank notes to the banks for distribution to their customers. During the 12 months to 30 June 1999, the Bank processed 529 million notes. On average, around 91 per cent of these bank notes were reissued, the remainder being destroyed and replaced with new notes. Over this period, 401 counterfeit bank notes were discovered, compared with 408 in 1997/98 and 1,100 in 1996/97. The Reserve Bank's core role, in terms of currency, is the design, production and issuing of bank notes and coin. Also, we have a vital interest in the authenticity and quality of currency in circulation. The amount of processing and re-issuing of currency that we currently undertake goes well beyond what is required to ensure quality and authenticity. Therefore, we have asked the banks and security companies to consider the feasibility of establishing note and coin processing agencies, which would take over much of the currency processing currently done by the Reserve Bank. Work on this was underway at year's end. In recent months, several coin agencies have been established, which appear to be running satisfactorily. Longer term we are looking to the same for bank notes. These agencies would not be involved in authenticating bank notes and coins, that being the Reserve Bank’s function, but they would store and exchange currency between banks.

Polymer bank notes

During 1999, the Reserve Bank began changing the material on which the nation's bank notes are printed. Traditionally, bank notes have been printed on cotton-based paper. However, on 3 May 1999 $20 notes went into circulation made of a polypropylene polymer. Other denominations will be switched to this polymer later in 1999 and into 2000. The new polymer material is a transparent flexible plastic. This allows for a new security feature, which makes these new bank notes much harder to forge. On each polymer bank note "security windows" are created. These are small sections left clear and therefore transparent. The security windows make polymer bank notes almost impossible to photocopy or scan, as the transparent windows fail to reproduce. Where other countries have used polymer notes counterfeiting has dropped markedly. There are other advantages. Polymer is stronger than paper, and is non-porous. Polymer bank notes do not get dirty or tatty, and are harder to tear. They cost twice as much to print, but last four times longer. This will save the Reserve Bank about $1 million a year. Also, old polymer bank notes can be recycled economically into manufactured items, whereas generally paper bank notes cannot. The size and general layout of the various denominations are not being changed, although colours are brighter and some fonts are more modern. Aside from the security windows, other new security features have been added, while the metal security strip has gone. Prior to the release of the first polymer bank notes, the Reserve Bank organised a series of briefings around the country for people who handle money in their work, such as tellers and retailers. These were to explain the way the new money should be handled, as its folding characteristics are different. A brochure was also prepared, describing the new security features. Paper bank notes will remain legal tender, but we expect that by the end of 2000 most will have been withdrawn from circulation.

RBNZ annual report 1998 1998

Currency

One of the Reserve Bank’s key obligations is to meet the currency needs of the public. At year’s end the total value of currency in use had gone up 4 per cent to reach $1.81 billion. This comprised 66 million bank notes and 857 million coins. The Reserve Bank processes cash for commercial banks, detecting forgeries and replacing damaged bank notes, and then issues cash back to the banks according to their daily needs. During the 12 months to 30 June 1998, the Reserve Bank processed 515 million bank notes at our Auckland, Wellington and Christchurch sites. On average, the Bank reissued 92% of all bank notes processed, the remainder being destroyed and replaced with new bank notes. Over this period 408 counterfeit bank notes were detected, compared with 1,100 in 1996/97. Our bank note processing operation is accredited to ISO 9002, and during the year in review an audit of our operations, by Bureau Veritas Quality International, particularly commended our procedures for implementing improvements.

Plastic bank notes (i)

On 7 April 1998, the Reserve Bank announced that, as from mid 1999, the nation’s bank notes would be made of a new material, a flexible “polymer” plastic, instead of the cotton-based paper used currently. All the current denominations - $5, $10, $20, $50 and $100 - will be progressively issued in the new material, and by the middle of the year 2000 most bank notes in circulation will be made of the new material. This decision followed a tendering process, and the new bank notes will be printed by Note Printing Australia Ltd, a Melbourne-based subsidiary of the Reserve Bank of Australia (see box 5).

Plastic bank notes (ii)

Superficially the new “polymer” bank notes will look similar to the bank notes they will replace. The visual elements in their design will be mostly the same. However the feel of the new bank notes will be different, like bank notes already in use in Australia. Compared to paper, plastic bank notes are stronger and non-porous. As a result, they don’t get dirty and tatty, and they are much harder to tear. Compared to paper money, plastic bank notes cost roughly twice as much to produce, but they last four times longer, which will save the taxpayer about $1 million annually. As well, superior security features will help deter forgeries. These include a transparent window, which is very difficult to fake. The material used for the new notes is initially produced as a large roll of clear plastic film, which is then printed on, apart from a small area deliberately left clear, providing the transparent window. In Australia the introduction of plastic bank notes in 1992 resulted in reported forgeries there falling significantly, and a similar result is expected here. Plastic bank notes have the additional benefit that they can be profitably recycled into manufactured items, whereas bank note paper cannot be recycled economically, because of the strong inks used.