Polymer Banknotes - Australia's Experience Les Coventry Senior Manager, Currency Operations Note Issue Department Reserve Bank of Australia Paper presented at the Interpol 9th International Conference on Currency Counterfeiting, Helsinki, Finland, June 1997.

Introduction

I would like to thank the Helsinki '97 Conference Secretariat for allowing the Reserve Bank of Australia the opportunity to tell you a little about Australia's very successful experience with polymer banknotes.

I'm not sure how much, if anything, many of you here today know about what we've been doing "downunder" with our banknotes. However, I hope that following my presentation, and a later presentation by a couple of my colleagues, you will carry away a clear understanding of what we have been able to successfully achieve to date as well as a glimpse of the exciting developments that lie ahead of us.

So where are we at in Australia? The position currently is that all of our banknotes are now produced using polymer substrate. This sees Australia as the first country in the world with all of its banknotes on polymer rather than traditional rag based paper substrate. That we have developed this technology is something about which we are very proud. We believe it can benefit many other countries as well as ourselves. Indeed, interest from other countries is very high; not only has Note Printing Australia (the Division of the Reserve Bank which prints Australia's banknotes and where much of the polymer note technology is developed), to date printed polymer notes for seven other countries, we are also offering samples of press-ready substrate, without charge, to countries that have their own banknote printing facilities who wish to trial printing their own polymer notes. This we are doing via a company called Securency Pty Ltd, a joint venture company which the Bank has formed with the Belgian plastics company UCB to market internationally the polymer substrate. Such trials are now being undertaken at printers in many countries in Europe, Asia and the Americas. And there are others in the queue.

The focus of my presentation to you today will be on the anti-counterfeiting features we have been able to incorporate into our polymer banknotes. Increased security was, in fact, our primary objective in developing polymer notes. But it would be remiss of me not to make a brief mention of the other significant benefits that we have derived from polymer notes. A major spin-off has been the increased durability of our notes; our experience is this regard has been a quadrupling of the average life of our old paper series. The potential printing cost savings are clearly apparent. In addition, polymer notes are cleaner than paper notes, function in machines such as ATMs and note counting equipment better, and at the end of their day the waste can be recycled.

What is polymer?

Perhaps at the outset I should explain what exactly we mean by a polymer banknote. People often say to us, after examining our notes, that they are paper/plastic laminate, or that they are all paper except for the clear window. This is not the case. A basic polymer note is created from a substrate which starts as a roll of clear plastic film rather than the traditional fibrous rag banknote paper. In simple terms, the clear substrate is processed through the following steps:

• opacifying - two layers of ink (usually white but they can all be different if desired) are applied to each side of the note, except for an area(s) that is deliberately left clear;
• sheeting - the opacified substrate is cut into sheets suitable for feeding into printing presses;
• printing - traditional offset, intaglio and letterpress processes are used; and
• overcoating - notes are coated with a protective varnish.

More sophistication can be added by including unique security features at different stages of production.

What led us to polymer?

The genesis of Australia's involvement with polymer banknotes dates from a long time ago, 1966 in fact. In that year Australia moved to a new series of paper banknotes which included what was then considered to be state of the art security features. The worst fears of an issuer were realised when, within one year, high quality counterfeits of the $10 denomination were produced and widely circulated. Not surprisingly, the confidence of the Bank in existing banknote technology was severely shaken. So much so that the Bank took the view that traditional banknote technology had a limited useful life and the problems could only get worse with further advances in reprographic techniques which were then on the horizon.

The Bank's response to this experience was to look for radically new security devices which could be applied to banknotes to give the position of strength back to the issuing and note printing authorities. Many different devices were looked at, but the potential of optically variable devices (OVDs) was identified in the early 1970s. Many different types of OVDs were developed and experimented with, but the one finally most effort went into was the class of OVDs called diffraction gratings. With the focus on OVDs, interest moved to substrates made from laminates of clear synthetic polymeric materials as these were considered a more suitable carrier for such devices given their greater stability and smoother surface characteristics.

Once work on such substrates started, it was quickly realised that they offered many additional security and other advantages just not possible with paper. Immediately obvious was the ability to opacify most of the note with print while leaving a portion clear. This meant that devices like OVDs would be seen from both sides of the note, and the surrounding transparent area could be an important security feature in its own right. Also, the substrate could be permanently embossed and, if done in the clear window, could create a further unique security feature. A laminate also offered the potential to incorporate features inside the note such as OVDs and threads. Many other features were developed to trial stage.

Thus, the primary purpose for developing polymer note technology was to enhance the security of notes against counterfeiting. While counterfeiting in Australia is a relatively small problem by the standards of some countries, the increasing potential for counterfeiting of paper notes to become a major problem was an important reason why we turned to polymer for our new series of notes.

Following the encouraging results from a field trial of the new technology in 1988, at which time we released a Commemorative $10 polymer note, the Bank decided to release a new series of notes using the new polymer technology.

Anti-counterfeiting features of polymer banknotes

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. You will hear more about some of these later from my colleagues in a later presentation.

Polymer substrate offers considerable advantages in these areas and there is no doubt in our minds that polymer notes are relevant for other note issuers and printers around the world.

It is interesting to now see paper suppliers trying to incorporate polymer features into paper. To us, these attempts to imitate polymer notes and their unique features are the best form of flattery we could receive. They indicate that the security advantages, of the clear window feature for example, are now recognised. The patent literature shows clear windows being stuck into paper substrate or created through laminates of paper and polymer (just like counterfeiters would do!).

The emergence of an alternative supplier of a polymer substrate, albeit with a different type of polymer to the one we use, is also an important development giving credibility to the technology, and it will undoubtedly provide stimulus to further innovation because of the competition.

As you all would recognise, the threat of counterfeiting is still increasing, in part because of the rapid advancements in reprographic technologies that are available to the counterfeiter. Further advances will come as the aim of the producers of such technology is full, accurate colour reproduction of photographic quality. This will limit the value of print as a security feature and will increase the importance of security derived from the substrate and from add-ons such as foils.

Paper-based substrate technology is very old, with advancements generally occurring only at the margin. It has served its purpose well, but is now showing its age. This could be regarded as too harsh a view. But it seems to us that the future of security for paper notes is pretty well 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 the graphic arts materials which simulate foils, thin films and other OVDs (including OVIs - optically variable inks) 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. Also, while some countries have taken the approach of putting one of everything in, we take the view that such notes become too complex.

For us, all of this indicates the importance for note issuers/printers to look for new and novel features. A paradigm shift is needed for note issuers/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 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, banknotes will become useless because the person in the street cannot easily tell a counterfeit from the real thing.

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 OVIs, as it enhances their colour shift characteristics.

Australia's actual use experience

Australia now has had a reasonably long experience with polymer notes in circulation. The first note released in our new polymer series, the $5 note, has now been in use for over five years. The $10, $20 and $50 notes have been in use for four years, three years and two years respectively. The $100 note, the last in the series, has now been in circulation for just over a year, having been released in May 1996.

With over 18 billion cash transactions each year and with widespread machine processing of notes, Australia is the living proof that polymer notes work in a general functional sense, and work well. The risks associated with the change in technology were justified and have paid dividends. Others now have the opportunity to capitalise on what is proven technology in the most stringent testing environment - circulation.

The Bank's confidence in the technology is purely a result of the pleasing way polymer notes have been accepted and are performing in widespread use.

As I have said, the primary purpose for developing polymer note technology was to enhance security. We are confident that the threat of counterfeiting can be reduced significantly with the use of polymer banknotes instead of traditional rag-based paper notes. The hard facts are now starting to emerge to back up this confidence. Our counterfeiting statistics are now heading downwards at a rapid rate. It is still a little early to be conclusive as, during the introduction of polymer notes, we had an upsurge in counterfeiting of most of the old series paper notes prior to their replacement. Clearly, counterfeiters were taking their final opportunity to have a go at the older style of notes. These are now just about out of the system and we look to be heading towards a very low level indeed.

But let me be perfectly honest with you. We do not fool ourselves into thinking that polymer will eliminate counterfeiting altogether. In fact we have had a few counterfeits on paper of our polymer $50 note. But, put in perspective, the polymer $50 note has been on issue now for nearly two years and is Australia's most popular note and of reasonably high value. The $50 counterfeits were the work of "professional" counterfeiters but were relatively crude and easily detected by the public. They were all printed on paper using a colour copier. The clear window was simulated ineffectively by cutting a hole in the paper and sticking a piece of plastic across the hole.

More recently, a handful of counterfeits of our $20 note, printed on a thickish plastic material, have also appeared. Again, however, these are very crude and were easily detected, with the print peeling off very easily.

So our continuing belief is that polymer notes appear to have stopped the "casual" or crime of opportunity counterfeiter totally. As we have introduced the last denominations on polymer, the rate of counterfeiting, which is still based on the old paper notes, has been coming down dramatically. That's our good news experience in Australia from polymer banknotes.

The future for polymer banknotes

Our challenge for the future is to continue to make polymer notes better in terms of bringing on line the more sophisticated security features which polymer substrate allows and leaping even further ahead of the counterfeiters.

The future looks very rosy indeed. Based on our experience, we are firmly committed to polymer notes. So much so that we are investing further to improve the technology.

My colleagues from Note Printing Australia and Securency Pty Ltd will in a later presentation outline to you what the future holds for new security features on polymer notes. I don't wish to pre-empt that presentation, but let me ask that you prepare yourselves to learn a little about the forthcoming evolution of a very sophisticated "self-validating" banknote.