Nigel Clarke | Rationale, cost-efficiency and benefits of upgraded banknotes
Public officials are accountable for the expenditure of public funds. Period. This is a fundamental principle. For this reason, I have been concerned about impressions which may have formed from The Gleaner story, published a few weeks ago, on the unavailability of the sums involved in the contract for printing Jamaica’s upgraded banknotes. Some have interpreted the non-production of the specific information requested by The Gleaner as being at variance with the fundamental principle cited above. As we know, however, principles are often not absolute and apply provided that they do not violate other important principles.
Public disclosure of this specific information would constitute a breach of contract, which could subject the Bank of Jamaica (BOJ) to liabilities. The BOJ is therefore correct that such a disclosure would “constitute an actionable breach of confidence” and, as such, this specific information is exempt from disclosure under the Access to Information Act.
However, we cannot leave it there. Fidelity to the cited principle demands a response to the motivating and underlying queries, “Will we be better off?”, “Does this represent a good use of resources?” As minister of finance and the public service, with final responsibility for the form and design of notes and coins to be issued by the Bank of Jamaica by virtue of Section 14(1)(a) of the Bank of Jamaica Act, I see it as my duty to provide this account.
In my budget presentation I provided the background to, and rationale for, the upgrade of Jamaica’s family of banknotes. Recapping, the BOJ independently and without prompting, recommended to me almost three years ago, that Jamaica’s family of banknotes needed to be upgraded. In fact they advised that this was “overdue”. The benefits to be derived included (a) enhanced security as the next generation of banknotes embeds features that make it more difficult to counterfeit; (b) the upgraded banknotes would allow for much clearer distinction among notes reducing errors made in trading (e.g. mistaking the $500 bill for the $5,000 bill, often at night); (c) the upgraded notes would have features that better meet the needs of the visually impaired; (d) the cost of the upgraded notes, over the expected lifetime of each note, would be less than obtains today.
In addition to these four benefits, and related to the last of these above, upgrading Jamaica’s family of banknotes will allow Jamaica to entertain competition in the procurement of all our banknotes. This does not happen today. A little-known fact is that there are features on our current $50 banknote and $100 banknote, introduced in 2012 when the substrate was changed, that only one printer in the world can produce. (This was necessary at the time for technical reasons). Therefore, each time the BOJ tenders for the printing of banknotes there is only one printer in the world that can bid with respect to the $50 banknote and $100 banknote. Obviously, it is highly suboptimal, that we have only one source when procuring these two banknotes. The upgrade of Jamaica’s banknotes resolves this problem. Multiple banknote printers will be able to print all of the upgraded banknotes. With the upgraded notes each time banknotes need to be purchased Jamaicans can be assured of multiple bids for each denomination. This will be a vast improvement over current realities.
Today, our currency denominations use a mixture of materials called substrates. The $50 and $100 notes use a hybrid substrate, which is a mixture of cotton and polymer. The $500, $1,000 and $5,000 are on varnished cotton. These, however, are not the most durable substrates available today. In the upgrade of Jamaica’s banknotes the BOJ sought far more durable substrates that will improve the average circulation life of banknotes, thereby reducing reorder quantities and frequencies as compared with current practice.
The process to settle on the technical design of the upgrade of Jamaica’s banknotes included a competitive international tender process in which six globally renowned banknote printers participated. One of these bids was deemed non-responsive and so eleven design concepts were considered from five global suppliers. Furthermore, the evaluation of the bids was conducted with the advice of an independent global technical currency advisory firm that specialises in the technology and security of banknote printing.
The upgraded Jamaica banknotes that emerged from this process will use polymer as the substrate. The will feel very different from our banknotes today. The feel and texture of the British Pound, the Canadian Dollar or the Eastern Caribbean Dollar are all based on polymer substrates and provide a close approximation to what our new upgraded banknotes will feel like.
The Eastern Caribbean Central Bank, which is the Monetary Authority for the Eastern Caribbean countries of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, Grenada and St Vincent & the Grenadines, upgraded its family of banknotes over the years 2019-2021 to make use of the polymer substrate. Trinidad and Tobago completed the same banknote upgrade exercise, also using the polymer substrate, over the same period. And, this year, Barbados upgraded their family of banknotes using the same polymer substrate. Jamaica, therefore, is behind its fellow CARICOM countries in implementing this much-needed modernisation.
Further from the Caribbean, Australia, Canada, Ireland, New Zealand, Scotland, UK and 25 other countries around the world have similarly upgraded their banknotes to this more durable, less costly substrate.
THE $2,000 NOTE
In a separate correspondence, almost three years ago, the BOJ also independently, and without prompting, advised me that technical studies showed the need for the introduction of a new currency denomination between the $1,000 and the $5,000 note. The Bank of Jamaica further proposed the introduction of a $2,000 note that would bring greater efficiency to Jamaica’s currency structure allowing cash transactions to be settled easier. With the introduction of the $2,000 note alongside the $1,000 and $5,000 notes, consumers and businesses will require fewer notes to settle transactions.
COST OF PRINTING BANKNOTES
Over the past five years the BOJ has, on average, spent just under $1 billion every year to acquire banknotes, and in the process replace banknotes that are worn out.
The BOJ projects that without upgrading Jamaica’s family of banknotes it would spend $16.6 billion over the next 10 years on banknote procurement. By upgrading Jamaica’s banknotes, the BOJ projects to instead spend $12.4 billion over the next 10 years, inclusive of the initial procurement. The upgraded banknotes, therefore, promise savings of at least $4 billion over the next decade. The cost-efficiencies of the upgraded banknotes allow the BOJ to introduce an additional new denomination, the $2,000 banknote, and still save $4 billion over a decade.
We can also measure savings in terms of the number of banknotes purchased. Over the past five years the BOJ has procured an average of 122.6 million banknote pieces each year. The BOJ forecasts that if we retain the existing family of banknotes 123.9 million banknote pieces would be purchased annually over the next 10 years. The BOJ forecasts that with the upgraded family of notes, the BOJ will procure an average of 103 million banknote pieces per year over the next decade. So, though the BOJ will increase the number of denominations with the introduction of the $2,000 banknote, they anticipate purchasing a smaller quantity of banknotes overall each year largely due to the increased durability of each banknote and the substitution effect of the $2,000 note.
The modernisation of Jamaica’s family of banknotes is indeed overdue and Jamaica is behind our peers in this regard. The upgraded banknotes will allow the BOJ to use public funds more efficiently, saving $4 billion over 10 years, while improving the security and ease of use of our national currency.
n Dr Nigel Clarke is minister of finance and the public service and member of parliament for St Andrew North West. Send feedback to firstname.lastname@example.org.