Occasional Studies Banknote design for retailers and public DNB Occasional Studies Vol.8/No.4 (2010) Hans de Heij Central bank and prudential supervisor of financial institutions ©2010 De Ne der land sche Bank NV Author: Hans de Heij e-mail: [email protected] Aim of the Occasional Studies is to disseminate thinking on policy and analytical issues in areas relevant to the Bank. Views expressed are those of the individual authors and do not necessarily reflect official positions of De Ne der land sche Bank. Editorial Committee Jakob de Haan (chairman), Eelco van den Berg (secretary), Hans Brits, Pim Claassen, Maria Demertzis, Peter van Els, Jan Willem van den End, Maarten Gelderman and Bram Scholten. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopy, recording or otherwise, without the prior written permission of De Ne der land sche Bank. Subscription orders for DNB Occasional Studies and requests for specimen copies should be sent to: De Ne der land sche Bank NV Communications P.O. Box 98 1000 AB Amsterdam The Netherlands Internet: www.dnb.nl Occasional Studies Vol.8/No.4 (2010) Hans de Heij Banknote design for retailers and public Banknote design for retailers and public Abstract Two stakeholders of banknote design are discussed, retailers and the general public. A retailer on average receives around 120 banknotes a day. A security check should be effected in less than two seconds and avoid discussion with the client. A private person on average receives one or two banknotes a day. For the public the probability of receiving a counterfeit is low and confidence in receiving genuine banknotes high. On the whole, people in the Netherlands are familiar with two security features, the watermark and the holographic stripe. In daily practice the public is not willing to verify a banknote, but if they do, it should be done within 6 seconds. A ‘negative’ stakeholder is the counterfeiter. They target the retailer and create counterfeits with UV features that look similar to – or even better – than a genuine euro banknote. For a new banknote design a central bank may choose from over 20 retail and 50 public security features. This selection process is usually done in an organised way, although cost analyses are often not used (or published). However, this process by the central bank can be made more transparent and better manageable in an all-in-one model. A structured approach is suggested for the selection of both retail and public security features in the design of a new banknote. It starts with listing all features of the existing banknote and its users (security matrix). The second step is a marketing analysis of the banknote to be replaced; the creation of a feature-action matrix. In case of the retailer it is a tool-feature analysis (e.g. ultra violet light, infra red light and magnifier) and in case of the public it is a human action-feature analysis (e.g feel, look, tilt). If desired these feature-action matrices are reset for the new banknote. The third step is the most difficult one. The central bank has to decide which security features may be abandoned based on aspects such as public knowledge, user requirements, counterfeit analysis and costs. The study defines more than 25 of such criteria which a central bank may consider. Other criteria may be added; it is an open method. The retail and public features that are retained should be enhanced, not only technologically, but also in terms of design in order to improve their usability. The last step is the selection of new features. These features should fit into both the (reset) action-feature matrices and meet user requirements. A wider choice of 5 automatic devices is needed that are more reliable. To come to reliable detector features the central bank may include such features while leaving the development of the devices to the market. There is also a need for new human assisted retail features, since UV light and magnification features should be replaced. In case of public features there is a need for a wider choice of feel and look-at features. Selecting public features is only the first part in the design process of new banknotes. After this, a central bank must decide on the conceptual design of the public security features. Experimental psychology may support the development of innovative banknote design concepts, which is illustrated by several examples. This study also covers the counterfeit models developed and used by DNB since 1814. The recent models have been updated and now form part of the method proposed, such as intrinsic and extrinsic features (1976), internal and add-on features (1985), system approach (1991) and the simple method (2006). Other models introduced are resilience grades (European Central Bank, 2007), secure calc (US Treasury, 2009) and security effectiveness (Bank of Canada, 2010). Keywords: applied design, currency, payment system, cash money, banknote design, retail security features, public security features, counterfeiting. 6 Banknote design for retailers and public Table of contents Abstract 5 1. Introduction 9 2. Generic security matrix 17 3. Retailer 27 3.1 Analysis of retail security features 27 3.2 Method for selecting retail security features 41 3.3 Designing retail security features 49 4. Public 53 4.1 Analysis of public security features 54 4.2 Method for selecting public security features 74 4.3 Designing public security features 84 5. Central bank 123 6. Counterfeiter 127 6.1 Counterfeit analysis 127 6.2 Methods to analyse counterfeited banknotes 130 6.3 Design principles against counterfeiting 149 7. Conclusions 153 Acknowledgement 153 Appendix 1 - Public knowledge of security features 155 Appendix 2 - Intrinsic and extrinsic security features (1976) 159 Appendix 3 - Internal and add-on features (1985) 161 Appendix 4 - System approach (1991) 167 Appendix 5 - Simple method (2006) 191 Appendix 6 - Time required checking a banknote 195 Appendix 7 - Nested features 203 7 Appendix 8 - Response policies of central banks on counterfeited banknotes 204 Appendix 9 - Which features should be developed? 209 Appendix 10 - Conjoint research: what does the public want? 217 Appendix 11 - All-in-one method applied to retail features in euro banknotes 221 Appendix 12 - All-in-one method applied to public features in euro banknotes 231 References (Chronological) 241 Publications in this series as from January 2003 253 8 Banknote design for retailers and public 1 Introduction A stakeholder approach as a basis for banknote design was proposed by De Nederlandsche Bank (DNB) in 2007 in the Occasional Study ‘Public feedback for better banknote design 2’ written by Hans de Heij [94]. To implement such a stakeholder approach in the design process of a new banknote, a methodology was proposed in 2008 using a ‘Programme of Requirements’ [108]. Listing the requirements from a user’s point of view should be the start of banknote design. In 2009 the user requirements of three stakeholders, the colour-blind, the partially sighted and the blind, were published by DNB [148]. This study continues with the user requirements of two more stakeholders, the retailer and the general public. The counterfeiter is introduced as a third, ‘negative stakeholder’. The cost of new produced banknotes is paid by the central bank and therefore the bank is a stakeholder, too. The security industry has launched many new security features, especially for the public. This current preoccupation with providing banknote security features for the public is questioned. Central banks can choose between more than 50 public security features. One of the questions is, do central banks target the right user group? Should the focus not be on the retailer instead of the general public? [166]. The retailer is a key person in preventing acceptance of counterfeit banknotes; on average they receive around 120 banknotes a day, against just one or two by the public. The focus of the Bank of Canada is also primarily on retailers rather than the public. However, this is not yet common practice among central banks. One of the main tasks of a central bank’s currency department is to design banknotes that can be authenticated. We have to keep in mind that the individual features are a means to this end and not an aim in themselves. ‘Security features are only as good as the authentication checks made on these notes’ is a valid statement made by the Bank of England in 2010 [167]. Accountable and transparent central banks Little is known about banknote design for reasons of confidentiality. Modern governments are stepping back, leaving more responsibilities to citizens, who are better educated and have their own opinions. Following this trend, modern central banks should become transparent and accountable for their policies, including banknote design. For example, since 1985 the United States Department of the 9 Table 1 Year Public input asked by central bank on 1965 Introduction of low denomination, NLG 5 (Netherlands) 1978 Introduction of mid-denomination, NLG 50 (Netherlands) 1981 Introduction of high denomination, NLG 200, 250 or 500 (Netherlands) 1983 Start of 2-year periodic ‘knowledge and appraisal’ (Netherlands) 1996 Euro design contest (European Monetary Institute) 1999 Themes (Canada) 2004 National side of euro coins (Estonia) 2005 Design contest (Denmark) 2006 Names suggested for new designs: input possible via website (UK) 2007 Design contest (Switzerland) Dimensions, subjects for new euro design (Netherlands) 2008 2-euro coin design by internet (EU) 2009 Conjoint analysis of public security features (Netherlands) Overview of the history of invited public input in banknote design (non-exhaustive). NLG = Netherlands guilders Treasury has published several public reports on the ‘next generation currency design’, the most recent one in 2007 [15, 25, 36 and 102].