"Euro is counterfeited 10 times more often"7 2015

Arkady Trachuk rules the most monetary enterprise of Russia Goznak. Counting its history since 1818, now Goznak looks like a modern fashionable office inside, and Mr. Trachuks own room is decorated with collections of banknotes and coins. It is profitable to produce money, says the General Director of Goznak. The enterprises profit grows every year. The sanctions make life more complicated. Politics affect the choice of a banknote supplier noticeably more than many other fields of activity, says Mr. Trachuk. Weve lost two tenders due to the political reasons only this year. The thing is that Goznak not only produces money, passports, policies etc. for the Russian people but also competes to produce money for other countries. Arkady Trachuk leaves open the possibility that Goznaks profit may decrease this year (he does not disclose the money production costs or the enterprise efficiency). But Goznak is constantly searching for new ideas. Mr. Trachuk described them to Vedomosti.

How do you evaluate the economic situation?

We at Goznak are geared to open published indexes of the macroeconomic statistics. For us it is first of all an opportunity to evaluate how much work Goznak will have in the coming 1 or 2 years. Now we see that the monetary basis (in the broad definition) has been practically unchanged for almost two years already, and the index germination in the nearest future may bear evidence of either inflation or economic recovery. I like the second variant better.

How has the crisis affected the money net cost?

There is an impact, and it is noticeable. The crisis has not affected the factual net costs of our products yet we have stock so far and we are able to control the expenses. But we buy a lot of components abroad and apply foreign equipment, therefore the expenses change together with the currency rate. For different banknotes, the currency component in their net cost varies from 18 up to 45 47%.

To make money

Has import substitution affected Goznak? Are you planning to shift to components made in Russia?

We apply cotton, for example, in the banknote production. We certainly can engage in import substitution and start to apply linen instead, but Im afraid the economic consequences will be hard (laughing). In addition, above all, the customers the Bank of Russia may not be satisfied with the result. Historically the banknotes were made of rags, we can try to collect that, but today people rarely use clothes of pure cotton, but we cant disengage synthetic fibers from cotton so far. Seriously, we certainly substitute those components and materials we can. We work together with the Russian manufacturers, experiment, somewhere we use two sources in order to be able to switch to an alternative component at any moment, we create our own equipment together with our partners, for example quality control systems. But it is economically inadvisable to build printing machines for banknote production our long-term demand will not cover the costs of creating the production site and equipment development. Today the whole world buys such equipment from Komori Corporation (Japan) and Koenig & Bauer AG (KBA, Germany); Goznak buys the equipment from KBA NotaSys (Switzerland) which is a part of the group of companies. Our company shifted to the equipment of these manufacturers back in 1970 1974, and it is hardly necessary to replace it.

Where does Goznak purchase cotton?

Our main supplier is Uzbekistan, but we try to have different supply sources. Therefore we buy cotton in Turkey and other countries.

Are there problems with your foreign partners because of the sanctions?

There are, but they are not significant. There are no problems, of course, when we are the customers (laughing). When Goznak is a supplier, there is an influence of the sanctions. Politics affect the choice of a banknote supplier noticeably more than many other fields of activity. Weve lost two tenders due to the political reasons only this year.

Do you win many tenders?

This year weve participated in eight international tenders and won four of them.

What is the main source of Goznaks profit?

The main source of our profit is banknotes and coins for the Bank of Russia, they comprise a little less than one third of all the income. 25% are identification documents (passports etc. Vedomosti), about 20% are stamps, excise and postage ones, and export makes up about 15%.

Is Goznak currently producing a lot of money for other countries?

In 2015 were planning to produce 1 billion 100 banknotes for export it covers the annual demand of a country with the population of about 50 million people. It is an interesting market for us. We export about 4000 tons of banknote paper every year. We dont produce a lot of coins for export, but theyve comprised quite a large volume too this year. Weve got two new contracts this year: one for the supply of a system of issuing and control of foreign passports in Laos and a similar order for Namibia.

Which countries have the largest demand for Goznaks products?

Euro is counterfeited ten times more often

There is not a lot of counterfeited money in the market now, according to Mr. Trachuk. About 80000 or 90000 pieces of counterfeited Russian banknotes are detected in the whole country. Even if there are more of them taking into account those undetected, to compare to the total number of banknotes in circulation (about 6 billion banknotes), counterfeited money does not affect the cash turnover today. To compare: euro is counterfeited ten times more often. It is difficult and expensive to counterfeit banknotes, and naturally, it is more profitable to produce fake 50-euro banknotes than those with the face value of 1000 roubles. At that, the Russian banknote security level is quite high they are equipped with a series of reliable features, some of them are absolutely unique.

The number of fake policies of the Obligatory Medical Insurance has been growing in the recent years. The model of the document has not changed for over 10 years, explains Arkady Trachuk. In any case, the security features become easily accessible in 5 7 years. The counterfeiter understands that he can receive thousands of roubles if he sells a piece of paper for the production of which he has spent a hundred roubles. And it certainly kindles his interest.

We dont keep such statistics. We usually focus on the markets of South-East Asia, Africa, and Central America. We are working with South America a little less at the moment it is the priority of our further development now. Except Australia, there is no other continent where we are not represented in this or that way.

To spend money

How does Goznak spend its income?

At the turn of the century the Bank of Russia financed the enhancement of Goznaks technological level. Many people still remember the situation in the 1990s when there was not enough cash in the country. The long-standing employees of Goznak say that they worked 24 hours a day but even that didnt help the technical level and the production capacities did not permit us to provide the country with cash in the galloping inflation conditions. We simply didnt have time to print banknotes. The modernization was completed in 1996 approximately. In 10 years we had another production modernization. We took out a large loan from VTB about 150 million US dollars for it. Now, after 10 more years, were facing the matter of a modernization again. However, the conditions have changed, and we dont need so much printing equipment today. At the same time, the volume of investments has not decreased; it has even increased a little: we install new equipment, for example, identification document personalization centers. Today passports with the electronic chip pass the whole cycle of manufacture and personalization at Goznak; ready documents are supplied to the customers. All that requires changing of the technological processes. For example, at the Moscow Printing Works of Goznak there remain only two printing machines; and we will remove them from there in a couple of years. The branch will specialize in document personalization and guaranteed storage of electronic data completely.

Does the change of technological processes affect the expenses?

It changes the expense structure for printing; it ceases to be traditional when the money is mostly spent on paper, ink and salary. The paper expenses decrease, but the enterprise needs higher-skilled labor, support and development of information systems. For example, we have introduced single-copy banknote sorting, when every banknote is checked before it is shipped to the Bank of Russia. Therefore the Bank of Russia has completely stopped re-counting banknotes upon receipt, they send them to the recipients in our packing immediately. This fact changes a lot in our relations with the customers, and there are quite a lot of such changes.

Will you spend your own profit upon modernization or will you take loans?

Taking into account the present dividend policy when we transfer 25% to the budget, we dont need loans. If the Government increases the dividends, we will have to change the investment program and attract money from other sources for the modernization. We have carried out all financing of our activities using our own money since approximately 2006. If we take loans, they are small and short-time as a rule.

The new money

The UK is switching to plastic money since 2016. Is it planned to do the same thing in Russia?

There are not enough arguments in favor of bringing up the question about introduction of plastic money in Russia. Although technologically plastic money printing is not a problem for us. The topic of the plastic banknotes did not appear yesterday. For example, in Australia the first banknotes on the plastic basis appeared already at the end of the 1990s. They have advantages and disadvantages they are at least twice as expensive, but their circulation time is about three times as long. But the actual circulation time depends on the culture, circulation peculiarities and the face value. What is good in the tropical climate is not as good in our conditions. For example, the fold of such banknotes does not recover, their plasticity changes depending on the temperature. Though I dont know if somebody will place them into the deep-freeze cabinet to check (laughing).

People are used to a certain kind of banknotes, their security, for example the watermark; transfer to plastic requires a large-scale and expensive campaign to explain what the plastic money is.

One needs to retarget all the equipment at the commercial banks, the Central Bank, large retailers. On the one hand, it is a one-time operation, but still, these are also expenses. Nobody will shift to the plastic banknotes at once, and it will be necessary to support the processing of both the cash flows paper and plastic for a few years.

The last argument is that we produce paper of high quality, we supply it to almost 20 countries in the world, we apply absolutely exclusive security features which cant be reproduced even by our high-qualified colleagues. Today there are a lot of ways to increase the circulation time of the paper banknotes they include special paper structure, varnish application; we have been engaged in that together with the Bank of Russia in the recent years.

- Is it possible that Russia will refuse cash at all?

About three years ago we performed a research and decided to build our model to evaluate the perspective of cashless payments spreading in retail trade in Russia. According to our calculations, by the end of 2025 the share of cashless payments in retail trade should reach 42%. According to the results of 2014, the index comprised almost 20% already. There will be a delay because of the crisis, but the general trend is obvious, and in the nearest years the number of such payments will continue to grow due to the infrastructure expansion and the National Payment Card System project realization. Naturally, there will remain people who will never use plastic cards or electronic money, but gradually more and more people will switch to cashless payments. Although I would not claim that there will be no cash in the foreseeable future already.

Should we expect new banknotes to appear?

Mints: private and state

Before the end of the year, Goznak should start working as a joint-stock company with the 100% state participation. I hope it will give us a new impulse for further development. <> The question is not whether our enterprise is private or state. The main aim is the same to receive profit, and we achieve that as a state company today. Every year we demonstrate quite high profit 6 to 7 billion roubles. This year we predict some income decrease.

The results [of work of mints in the world] vary noticeably, one should see the reports and analyze them. There are enterprises with mixed ownership of the government and the National Bank of the country. There are a lot of private mints, fewer security printing factories. Since they exist, it means the business income allows them to operate. For example, Bureau of Engraving and Printing in the USA is more like a state establishment. But Giesecke & Devrient in Germany has been fully private for the last 150 years.

The Bank of Russia has announced a commemorative banknote dedicated to reintegration of Crimea and Sevastopol with Russia before the end of the year. Overall, the work upon creating new banknotes and modernizing the existing ones is carried out constantly. In the future, it will be necessary to replace even the image, but the question is not raised yet.

What about changing the 50-rouble banknote to a coin, for example?

There has appeared a 25-rouble coin dedicated to the Olympic Winter Games of 2014 in Sochi. It was the first experience of issuing coins with the face value of more than 10 roubles. But were not preparing to produce coins with higher face value today.

Will the kopeck coins be abandoned?

When did you las see coins with the face values of 1 or 5 kopecks in circulation? Every coin is either in demand or not. Commercial banks and retail trade abandon coins with low face values, and the Central Bank doesnt need to order them. Today the demand for 10 and 50-kopeck coins has started to decrease too.

How much does the production of a 50-kopeck coin cost?

I cannot give you the exact figures, but it is definitely more than its face value.

Goznak produced money for the following countries in 2014:

To produce and destroy

Please tell us about the recent innovations of Goznak in the banknote or coin production.

We thought and decided, why dont we produce plastic coins to integrate the banknote security features into them and increase their service life and security. In 2014 Goznak offered its revolutionary development Plamet representing a new payment means combining the best characteristics of both banknotes and coins to the potential customers. It is not a very plain technology; it is considerably cheaper than a coin but more expensive than a banknote. The composite coins produced under the Plamet technology have been in the cash circulation of Transdniestria. Today the coins have no analogues in the world. So far, weve received positive feedback.

Can a coin like that appear in Russia?

Not in the nearest future. The Bank of Russia would like to make sure that the payment means is convenient from the point of view of its processing.

What is Goznaks share in the plastic card market today?

Our share is not great in the market of bank cards. But we have never striven to increase it. We are interested in the production of plastic cards first of all as a carrier of electronic documents. Our plastic production is large, possibly the largest in Russia, but the share of plastic cards of the international payment systems is very little, a little less than 1 million cards a year. It is very little according to both our volumes and the market share.

Is Goznak getting ready to issue cards of the National Payment Card System? Have you already signed first contracts?

We are interested in that; we are getting ready, working with both the National Payment Card System and commercial banks interested in the products. There are banks who have expressed their interest in participating in the first launch, which the National Payment Card System is planning to hold in December. There are preliminary agreements, but I cannot name the banks.

What will Goznak make the Mir plastic payment cards of? What chips, plastic etc. will you apply? How will you make them?

The cards are in operation right now, the first pieces will be ready in a few weeks, there is an approved model of a hologram, the card parameters are determined, there are no great peculiarities. But a certain microchip is necessary for every bank to be used in its personalization system, and our specialists are working upon it now.

How does Goznak choose its suppliers now? Your previous supplier of coin blanks, Gurt, was complicit in tax dodging.

The choice is carried out according to formal criteria, which correspond to the legislation. There are no instruments of deeper control, and we can often hope for the suppliers trustworthiness only. Unfortunately, the story about the coin blanks is not the only one in which Goznaks suppliers have been complicit, but it often emerges only with the help of the law enforcement authorities. We naturally stop working with such suppliers. Today we purchase coin blanks from another company with the same name. By the way, the name refers to the coin business and means the lateral edge of a coin. We have visited the production site, examined the equipment and we cannot express any displeasure with the supplier. This company is a supplier not only of Goznak but also of a few European mints.

Does Goznak purchase the coin blanks from Gurt only?

Right now it is so. Beforehand, when we applied blanks of nonferrous metal, there were more suppliers. Later on nonferrous metal was rejected due to its expensiveness. There was a period when we applied imported coin blanks, coins of steel with a galvanic coating of nonferrous metal were introduced then, but there were no sufficient capacities in Russia. Now Gurt has finished the installation of a second line of application of a galvanic coating of nonferrous metal, and it covers our demand in such blanks completely. Foreign companies cannot compete with this company in prices.

The security product manufacturer

Owned by the Russian Federation. The financial indexes (Russian Accounting Standards, 2014): proceeds 44.2 billion roubles, net profit 8.5 billion roubles. Goznaks history began in 1818 when according to the decree of Emperor Alexander I the Expedition of Storing State Papers was founded; it was an enterprise that started to make special paper and produce paper money protected against counterfeiting. In 1919 the Expedition was reorganized and named Goznak. Today Goznak produces banknotes, coins, passports, special, excise and postage stamps and other security products.

People said that Goznak wanted to accept responsibility of money destroying. Is the idea discussed now?

It is nothing more than talk. Theoretically, it is possible, but there is no practical sense in it. Today the Bank of Russia provides its territorial branches with an opportunity to carry it out on spot, not to bring the worn banknotes to the destroying centers. Moreover, banknote-counting equipment is supplied to these branches; it is already equipped with worn-out banknote destroying modules.

How many state awards does Goznak manufacture per year, and how much precious metal is spent on it?

The figure is not great, the state awards have never been a mass product. We produce 6000 awards a year. It is a stable figure, only the assortment changes a little. Jubilee medals are another matter. For example, The 70th Anniversary of Victory in the Great Patriotic war 1941 1945 jubilee medal was struck at the Mints of Goznak in the number of over 2.5 million pieces.

Different attitude to money

What is the attitude to money of Goznaks employees who work with banknotes every day? Have there been cases when people tried to steal the money?

There are rare cases when people quit working because they cannot endure it psychologically. I cannot say there have been no cases of theft at all. All people are passionate. Once is a few years we face emergencies, but they are more likely referred to excesses. It may seem surprising to an ordinary person that people steal spoiled products. But, for example, spoiled coins are much more valued in the market than ordinary ones. Therefore, a special mode is introduced at the Mints when they come to work the employees take off their clothes and go to another cloakroom to put on the uniform. They go to the production site only after that. It all repeats after the working shift the other way round. Other precautionary measures are applied at the banknote production sites. However, the majority of employees treat money as a product only.

What is your personal attitude to money?

It is not an easy question (laughing). As an inhabitant, just like everybody else, I spend it with pleasure. As a money manufacturer, Im interested not only in banknotes and coins, but also the attitude of the society to them and their future, because the future of Goznak depends on that.

When you travel abroad, how do you evaluate the money quality in other countries?

I even bring them here (showing the banknotes of Zimbabwe and counterfeited Turkish liras). I certainly follow the work of my foreign colleagues very closely.

Source: Vedomosti 06.10.2015
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