The Bank of England is looking to move toward a new system for banknote authentication, whereby cash paid into a shop can be quickly recycled into an ATM and be used by someone else locally.
This differs from the current system where cash is authenticated by wholesale cash centres prior to being allowed to be put back into use in ATMs or other cash dispensing machines.
The new system will therefore need to be very secure to ensure that all the banknotes recycled locally are authentic.
As a precursor to this the Strategic Cash Group will commence a public consultation for a new policy on banknote authentication.
Commenting on the launch of the public consultation for the ‘Code of Conduct for the Authentication of Machine-Dispensed Banknotes’ Chris Salmon, Executive Director for Banking Services and Chief Cashier for the Bank of England, said:
“Today, the Strategic Cash Group is launching a public consultation on a new industry policy for banknote authentication. This is in response to a banknote recirculation model which has developed in recent years:
“Local recycling occurs when a banknote tendered by one customer in, for example, a bank branch or shop is then used to refill cash dispensing machines e.g. ATMs or self-service checkouts, and so then acquired by another customer. This differs from using banknotes authenticated by wholesale cash centres to refill these devices: a model which has provided robust authentication and quality control for banknotes for many years.
“Local recycling has gained popularity abroad, particularly in Japan and parts of Europe. It has the potential to be a useful supplement to the wholesale cash model in the UK, in some circumstances increasing efficiency and flexibility. But without appropriate controls it could also reduce the extent to which banknotes are authenticated.
“Robust authentication underpins the public’s continued confidence in the currency: the public need to trust that the banknotes they receive are genuine. This starts with the sophisticated security features which are built into the banknotes themselves. But it also depends on these security features forming the basis for authentication and handling practices throughout the cash cycle. Practices which the entire cash industry need to work together on.
“The ‘Code of Conduct for the Authentication of Machine-Dispensed Banknotes’ will deliver robust local recycling by addressing the change in how, where and by whom a banknote may be authenticated.
“Many stakeholders already adopt good practice on this area. We now want to ensure that there are adequate processes in place right across the industry to make sure counterfeits do not start to recirculate to the public through ATMs and self-service checkouts, while also enabling the cash industry to benefit from the potential efficiencies of local recycling.
“There were just over 700,000 counterfeit Bank of England banknotes removed from circulation in 2012: nearly all of them were Â£10s and Â£20s. While they account for only a fraction of one percent of all Bank of England notes, we would like to work with you to reduce this.
“The Bank of England employs a team which develops the most sophisticated banknote features. It also analyses counterfeits and works with law enforcement agencies to bring counterfeiters to justice. And our education team publicises the importance of checking multiple security features. But spreading good practice is not something we can do single-handedly: we need the collaboration of all cash users.
“This collaboration is already well underway. The Code was drafted for SCG by a sub-group, which has already sought considerable input from the cash industry. We are seeking to build on this through the consultation process which starts today.
“SCG’s aim is to put the Code in place later this year. It will be based on notes distributed via ATMs and self-service checkouts being authenticated by machines which have been successfully tested by the Bank of England.
“I hope that many of you will respond to the consultation. With the Code in place, we will have a robust and relevant policy for local recycling and a new pillar to support continuing confidence in our currency.
“The consultation will run until 20 May 2013. A formal response will be published in July 2013, alongside the final Code.”