Polymer notes and recent counterfeiting experience in Australia

By John Colditz, Head of Note Issue, RBA
 

Paper presented at the XIII Pacific Rim Banknote Printers' Conference, India; December 1997.

Introduction

Thank you Ladies and Gentlemen for this opportunity to talk to you today about Australia's experience with counterfeiting since the introduction of polymer banknotes.

At the time of the last Pacific Rim Banknote Printers' Conference we had just started to introduce the polymer $50 note in circulation - this was the fourth note in a five note series to have its substrate switched from paper to polymer. In May 1996 the polymer $100 note was introduced, completing the changeover of all of Australia's notes from paper to polymer substrate. The vast majority of notes now circulating are polymer and have been for some time and so we are now able to confidently assess the impact of the change on counterfeiting.

What has the impact been? In short, we have seen a dramatic decline in counterfeiting rates. This confirms a major element of what I was foreshadowing at the last Conference that polymer notes are indeed a great success story. We are very proud of this Australian technology and we believe it can benefit many other countries as well as ourselves. Interest from other countries is very high.

The long term future for polymer banknotes is particularly good because the potential of polymer is simply enormous. What the world has seen of polymer notes so far is only the beginnings of what can be done with the technology. I know this is easy to say and sceptics may not be easily convinced. Consequently, as well as outlining our experience to date, I will also give you a glimpse of just a few of the exciting developments now underway. I know you will share our excitement about the R&D program.

I am, of course, aware that the interest in polymer in some countries stems from a desire to increase the durability of their low denomination notes. That is quite a legitimate reason, although durability was not our primary objective in developing polymer notes. But, it is of value when production capacity is limited, when there is pressure to change a low value note to a coin, or where there is pressure to reign in the cost of the note issue and note processing costs generally.

Just on durability, in Australia we have experienced a quadrupling of the average life of our low denomination notes. Our higher denomination polymer notes have not been in circulation long enough to be precise about their longevity, but indications are that we will see similarly impressive performance. I cannot promise that these results will translate exactly to all other countries. Views on quality are very subjective and likely to change over time. But I believe that polymer equivalents to any country's current paper notes would significantly increase durability.

We hear occasionally that some paper manufacturers and commercial note printers are actively discouraging central banks and government note printers from switching to polymer. If that is so, and while we don't agree with them, we suppose we can understand their position, bearing in mind that orders upon them stand the prospect of significant reduction by a move to polymer. Any suggestion by them that polymer does not perform well is a deliberate distortion of the truth and is totally false, totally incorrect. In Australia, polymer notes have now replaced paper notes of every denomination. With over 90% of consumer payment transactions conducted in cash each year and with widespread machine processing of notes, Australia is the living proof that polymer notes work in the general functional sense, and work well. The risks associated with changing technology were justified and have paid good dividends. Others now have the opportunity to capitalise on what is now well proven technology.

Challenges

Central banks face the challenge of how to deal with the risk of better and greater numbers of counterfeits.

In Australia we responded to this challenge in an innovative way through the introduction of polymer substrate. There is no doubt that innovation brings with it risks. Are those risks worth taking? The potential counterfeiting problem we believed we would face in the future if we did not make a radical change was sufficiently great that we thought those risks were worth taking.

Fortunately, polymer notes have been a resounding success.

To justify a radical or fundamental change in an area like banknotes requires the new technology not just to be the equal of the old, but better. The new technology must also have a long term future; that is, it should be just starting its evolutionary development so that those who invest in it are confident that the investment will pay even better dividends in the long term.

If polymer substrate is to achieve wide application, people need to be convinced of the security value of polymer substrate, not just its durability benefits. To date, many people have been sceptical of the security value of polymer even though they acknowledge that the clear window is a simple yet very effective security feature. Paper banknote manufacturers have been trying very hard to work on this scepticism and to strike a chord with the naturally conservative and risk averse community of central bankers.

Consequently, before outlining to you our counterfeiting experience with polymer notes in actual use, I want to first give you an insight into why polymer provides a security advantage over paper substrate now and in the long run.

Security (PACRIM)

As I have said, the primary purpose for developing polymer note technology was to enhance security. We do not fool ourselves into thinking that polymer will totally eliminate counterfeiting, we have never said this. The advantages we see arising from polymer notes in the fight against counterfeiting are:

• making it more difficult, time consuming and costly to counterfeit by increasing the range of skills and steps required;

• making it easier to recognise a counterfeit;

• providing a platform for new and varied security features which can be introduced when needed.

What also became more obvious during the development stage of polymer notes was an increase in the level of counterfeiting which reflected the following:

• rapid improvements in print technology in the public arena particularly in regard to colour photocopiers;

• the increased availability of colour photocopiers, as they became cheaper; and

• the lower level of skills required to use publicly available scanning devices, computers and colour printers.

In this environment it was overwhelmingly clear that there was a need to increase substantially the effort to keep ahead of counterfeiters, and in particular, to eliminate as much as possible opportunities for the casual counterfeiter to produce fake notes. Polymer substrate offers considerable advantages in these areas and there is no doubt in our minds that polymer notes are just as relevant for other note issuers and printers around the world. It is interesting to now see paper suppliers trying to incorporate some polymer features into paper. To us, these attempts to imitate polymer notes and their unique features are really a form of flattery to us. They indicate that the security advantages, of the clear window feature for example, are now well recognised. The patent literature shows efforts to put clear windows into paper substrate or created through laminates of paper and polymer.

Paper-based substrate technology is very old, with advancements generally occurring only at the margin. It has served its purpose well, but is now well and truly showing its age. The future of security for paper notes is reduced to add-ons. However, there are limits to the effectiveness of add-ons on paper because the surface is rough, the fibres fracture, and there can be chemical attack from the paper itself. Graphic arts materials which simulate foils, thin films and other OVDs (including OVI) are becoming increasingly available commercially. For such features to be effective as counterfeit deterrents it will be necessary to use them in more imaginative ways in the future than we have seen so far. Also, while some countries have taken the approach of putting one of everything into their notes, we take the view that such notes become too complex for the person in the street. It is only with polymer notes and the self-authenticating banknote concept which I'll say more about in a few moments, that the issuer and printer can fully integrate the substrate, the print and add-ons.

For us, all of this indicates the importance for note issuers and printers to look for new and novel features. A paradigm shift is needed for issuers and printers - one has already occurred for the counterfeiter. A new technology which has started its evolutionary life is more relevant because it will present a formidable array of new and costly challenges to the counterfeiter over the long term.

Of course, a change such as we have made is a very major change to make, involving bold decisions and a certain amount of risk taking. But these things are needed if we are to stay ahead of the counterfeiter. If we fail to stay ahead, the consequences are fairly horrendous. At the extreme, should the day ever come when the person in the street cannot easily tell a counterfeit from the real thing, the use of cash can be expected to decline sharply and we will stand a very good chance of achieving a cashless society by default.

Importantly, polymer notes offer a long term future because they will accommodate new and varied security devices which will just not be possible with paper notes. We have not had to use the full range of security features possible with polymer so far, as the use of the simple transparent window (with printing and embossing within it), in conjunction with "normal" printed security features, have done a very effective job for us.

As the same printing processes are used for paper and polymer banknotes, all security features printed on paper can also be applied onto polymer. These include intaglio, offset and letterpress printing for features such as tonal portraits, latent images, micro-printing, intricate background patterns, see-through registration, visible or invisible fluorescent or phosphorescent features, and the use of "metallic", metameric or metachromic inks. The polymer substrate is also an excellent surface for the application of optically variable ink (OVI), as it enhances its colour shift characteristics. The watermark and thread features of paper notes also have their full equivalent in polymer notes.

A Glimpse of the Future

I mentioned earlier that what the world has seen of polymer notes so far is only the beginning of what can be done with the technology. What else is coming?

Part of the future of polymer notes lies in realising that the clear window, as well as being a security feature in its own right, can act as an aid to be used with other features in the note to produce unique effects. To illustrate this, let me give you a few simple examples that the research people are developing:

• The clear window, or part of it, or one of a number of windows that could be in a note, can be made into a lens to form a magnifier or unscramble scrambled indicia. I know that the microprint on notes of many countries is very small. How much use is it? Who carries a magnifying glass in their pocket? But if the note had its own magnifying glass built into it, microprint as a security feature becomes a whole different story.

• The clear window can form a colour filter to really make use of the security potential of metameric inks. Many countries use metameric inks but they are not understood, and the effect created by, say photocopying a note, can be so subtle as to go unnoticed. Again, the picture changes dramatically if the note has its own special filter built in which is optimised to the metameric inks being used.

• The clear window and the thickness of the substrate can be combined with printed images to create moiré effects that generate dynamic images. Imagine a moiré designed to create a moving denominational numeral.

What we are creating is in effect a sophisticated "self-authenticating" banknote.

These are just a few examples whereby effects unique to polymer, and not possible with paper, can be created. They add dramatically to the time required, cost and difficulty a counterfeiter must face in reproducing them. But, more importantly, they bring to the person in the street access to easy methods of authentication which previously would have required an extra device such as a magnifying glass, a lens, or an alternative optical source.

Counterfeiting Experience

Australia introduced its new polymer banknote series over the period July 1992 to May 1996. While we were confident that the threat of counterfeiting could be reduced significantly with the use of polymer banknotes instead of traditional rag-based paper notes, we were also aware that counterfeiting would continue at some level possibly involving poor quality counterfeits. The hard facts are now starting to emerge: our counterfeiting statistics are now heading downwards at a rapid rate; in particular, polymer notes appear to have stopped the "casual" or the "crime of opportunity" counterfeiter totally.

This graph shows the total number of counterfeits passed each year since 1993. It is only since 1996 that the split between counterfeits of the paper note series and the polymer notes series is relevant. (The number of counterfeits represents a very small percentage of the 520 million of notes on issue in Australia.)

The big rise in counterfeiting in 1995 and 1996 reflects, among other things, easier access to colour photocopiers and scanning devices, requiring little technical skill to operate. With the paper notes series, the $50 and $100 note denominations were the most commonly counterfeited. The paper $100 note still continues to be the most counterfeited note but the numbers are now declining rapidly as the old series $100 notes are becoming much rarer to find in circulation.

Despite the Bank introducing the first polymer note of the new note series in July 1992, counterfeits of the polymer note series did not surface in any noticeable numbers until some 4_ years later - in early 1996. The first counterfeits were a fairly crude version of the polymer $50 note which had been issued some three months earlier - October 1995. (Prior to 1996, only a handful of low denomination counterfeits surfaced which were extremely crude and amateurish).

During 1996, all counterfeits of the polymer note series were produced on a paper substrate and were very crude. In many instances, there was no clear window or, if there was one, it was the result of cutting out a hole in the paper substrate and crudely sticking a piece of plastic onto the note to cover the hole. Such counterfeits were easily detected including by the appearance of the window and by feel including running one's finger across this area of the note. In many of these counterfeits the stuck on piece of plastic was peeling off.

The first counterfeit of the polymer $100 note did not appear until over six months after the release of the note. Since then, less than 20 counterfeits of this denomination have surfaced and again all on a paper substrate.

It was not until February this year that the first counterfeit using a plastic substrate to simulate our own appeared. This counterfeit was of the $20 note. Despite having a reasonably good reproduction of the printed areas, the counterfeit was still detected by feel and contained many other flaws related to the substrate that allowed them to be easily detected:

• the thickness and feel was noticeably different to a genuine note;

• they had a distinctly different sound because of the different polymer substrate being used;

• there was no embossing or only a crude embossing in the clear window.

More recently we have seen the same counterfeit job done on the $100, no doubt by the same person. Both these notes have been passed only in very, very small numbers. The message is loud and clear, the trend in counterfeiting is a strong downward one as this next graph shows.

This is the mind picture I want you take away today. In particular, you can see that the level of counterfeiting is now at a very low level indeed. Well under 200 a month now, with most of these still being counterfeits of the old paper series.

Not only has the introduction of polymer led to a much lower level of counterfeiting, it has also meant that fewer police resources are required for investigating counterfeiting matters.

The reduced level of counterfeiting is a very positive result for polymer and we believe that opportunities for the casual counterfeiter have been virtually eliminated. The main threat is now limited largely to the professional counterfeiter. A whole new array of advanced security features have been developed for use in polymer notes which will greatly assist efforts, when needed, to continue to make counterfeiting very difficult.

Summary

In summary, we can now say that, as well as:

• proving that polymer notes are a more viable alternative to paper notes in every day use;

• proving that polymer notes are significantly more durable and cost effective than paper notes; and

• being able to recycle our waste product;

we feel we can now say quite categorically that our counterfeiting experience proves beyond any doubt that POLYMER NOTES IMPROVE SECURITY.

Thank you for your attention.