Arkady Trachuk: We patent about 10 various ideas per year 22 2015

Arkady Trachuk: We patent about 10 various ideas per year

Chips inside banknotes, a hybrid of a coin and a banknote, digital solutions for a watermark Goznak patents a dozen of innovations, and half of them lands in production. In his interview to Bankir.Ru Arkady Trachuk, General Director of Goznak, Doctor of Science, Economics, a Professor of Strategic Anti-Crisis Management Department of the Financial University at the Government of the Russian Federation, described the disadvantages of the plastic money and explained why cash is actually cheaper than non-cash. For the customers, at least.  

How much is the money?
How do the modern technologies affect the cash production?
There are a few essential things principally important for both the money producer and the circulation sphere. For example, a security level. Today there are a lot of solutions, and the majority of them are oriented at the public feature field, i.e. those which make people sure that its money theyre holding, and not just beautiful pieces of paper. A lot of thing are improved basing on the past, new solutions appear even for creating a watermark, the digital world penetrates even that. There are new solution in the sphere of inks. Yearly we patent about 10 various ideas; we apply about half of them in production sooner or later.  

Does it mean that the production becomes more and more expensive?
Sometimes it leads to the cost increase, sometimes it doesnt. And, by the way, weve oriented at solutions that do not require the application of new materials in the recent years. We place our stakes at using the existing materials and technologies, that doesnt result in the production costs increase. For example, we use covert opportunities of the traditional printing methods.  
If one looks at the front side of the 500-rouble banknote, it is easy to notice the multicoloured 500 on a broad light-purple band to the left of the image of Peter the Greats monument. It is HMC security feature developed by the specialists of Goznak. Its production requires no special inks, but only a special technology of the printing plate manufacture. Security features of this kind do not affect the net cost.
What is the net cost of producing money in Russia?
I cant name the sum, it is forbidden by the law.
O.K. What about other countries?
The net cost of the medium face value comprises $ 30 - 40 per 1000 pieces.  

If we look at the figures we know because of our participation in international tenders, the net cost of the medium face value that corresponds to our 100 roubles comprises $ 30 - 40 per 1000 pieces.
And what is the share of imported materials in the Russian money production?
It depends on the face value. For the low face values, it is very low about 18%, for those of higher face values it rises up to 40 47%.
Does that mean the money has become one third more expensive lately?
It has not become so much more expensive. First of all, we have some opportunities of changing components and materials, secondly, we hold negotiations with suppliers in order not to bear all the currency risks ourselves. However, the currency exchange rate certainly affects the expenses.  
There are not so many banknote printing equipment manufacturers in the world. One and a half, to be precise.

Will it be possible to evade import completely?
It all starts with equipment - there are not so many banknote printing equipment manufacturers in the world. One and a half, to be precise. One company produces the whole line of banknote printing equipment that we need, and the other produces the major part.
- Is the equipment the same in the whole world?
Today the whole world buys banknote printing equipment from Komori Corporation (Japan) and the German group of companies Koenig & Bauer AG (KBA). KBA NotaSys (Switzerland) is a part of this group of companies; Goznak purchases the equipment from it. It has been applied since the middle of the 1980s in our country. Therefore, we will buy equipment and some components abroad, its unavoidable.  People have asked me whether it is possible to produce money using the Russian materials only. Theoretically, it is possible. But from the point of view of the economy, the equipment productivity and the product quality it is inadvisable.
Will it turn out to be much more expensive?
It will be both more expensive and less effective. But if it becomes necessary tomorrow, we will do it.

I see no reason to transfer to plastic money
How long is the lifetime of a banknote today?
It depends on the face value. Low values exist for about a year. With high face values, it depends on the circulation conditions. In principle, if the banknote circulates actively, its lifetime is about two or three years.  
Does the Central Bank ask you to increase the banknote durability because of the crisis?
It is not connected with the crisis. Its a long story, for about 10 years already the Central Banks in the world have paid attention to the paper durability, the banknote lifetime, the purity of banknotes in circulation  
As you understand, it is not very profitable for Goznak to increase the banknote lifetime. However, because there is a demand like that from our customers, we work upon the matter together with the Bank of Russia, and we have already achieved much. Today it is possible to say that because of a set of measures, for example, thanks to replacing the elements of raw materials for the banknote paper and banknote varnishing, it is possible to increase the banknote durability one and a half times approximately.  
So there is the most radical solution here to introduce plastic banknotes that have been spoken about so much recently
There are always a lot of advantages and disadvantages with the plastic banknotes. Yes, their lifetime is longer, its true; it is at least twice as long than that of the paper banknote; and some evaluations show that it is even three times as long. It is definitely an advantage. Bot there is also a disadvantage now the raw materials for the plastic production are also twice as expensive. And then, there is a question: where is an advantage here?  Theres a threat that if plastic banknotes are spread widely, we will witness a burst of counterfeiters activity.  
The second disadvantage is connected with the fact that the security level of the plastic banknotes is objectively lower than that of the paper banknotes. The third disadvantage which hasnt been revealed yet is that the plastic banknote substrate production is more available that the production of the paper one. When the plastic banknotes were in limited circulation, their counterfeiting did not attract much interest. However, theres a threat that if plastic banknotes are spread widely, we will witness a burst of counterfeiters activity. It is a considerable risk in our opinion. And we would like to watch what they do in different countries of the world.
There are many examples when countries introduced plastic banknotes, but returned to paper ones in due time. Many countries use the plastic substrate for the low face values and paper substrate for the high ones. Taking into account the fact that the papermaking industry is developed well in Russia, and there are technologies necessary for the improvement of paper banknote durability and security, I see no special reason to transfer to the plastic money.  

Chips in banknotes: who wants them?
Whats your opinion about the hypothetic possibility of the microchip application? Now they speak about it more and more often as an opportunity to individualize every banknote.

It is possible technologically. Another question is, why? From the point of view of every banknote individualization, there are other solutions today that do not require implanting any data carrier. Generally speaking, nothing prevents us today from scanning the image of every banknote during its production and keeping it.
But in general, are there any steps towards the chip today?
There have appeared chips, the thickness of which allows implanting them into the paper.
There have mostly been experimental works. There are corresponding patents, there have appeared chips, the thickness of which allows implanting them into the paper. More accurately, they are not chips so far but rather RFID tags, i.e. their memory is very small, it is practically impossible to record anything except for the serial number. That is its not clear, what it is for.  

But it is possible to calculate the money in somebodys pocket with the help of some scanner, for example
Yes, if youve got five banknotes in your pocket. However, today the cameras can not count, say, a hundred chips, if they are very close to one another.
Do your foreign colleagues possess any technologies that give rise to a professional envy in you?  
In the field of banknote and coin production, there isnt. Absolutely. We are on the same level with our colleagues in practically all aspects, and even exceed them in some technologies, in the field of papermaking and printing plate manufacture in particular.

Why is cash cheaper than non-cash?
Not long ago you said that cash turnover is far from being more expensive than non-cash. Have you carried out any research?
With payments for less than $30, cash and electronic money is comparable in costs.  

Weve based upon foreign works principally. They are practically unanimous in the following if we compare all costs correctly, with payments for less than $30, cash and electronic money is comparable in costs.  With more than $30, debit payment cards start winning the positions of cash, but credit cards are still more expensive than all other payments simply because of higher commission rates of these cards.
Because the research works were carried out in various countries and on different continents, but their conclusions are more or less similar, we have no reason to distrust them. And it is very natural that the micropayment area remains convenient for both cash and electronic money, and larger payments remain with the bank cards.

Are these researches applicable to Russia? Taking into account the huge territory, the necessity to transport cash and store it these are great costs.

Does not the maintenance of the communication line security system maintenance or fraud suppression cost a lot? It is a great question, whats easier to organize storing of a billion of banknotes and their delivery across the country, or provide high-quality operation of communication lines with the necessary certified encrypting systems.
If we speak about cash, the Central Bank bears a larger part of expenses.

and theres a separate question who pays for that? When we try to evaluate the expenses we often say, The consumer pays for everything. But it is not quite so. If we speak about cash, the Central Bank bears a larger part of expenses. It does not transfer the expenses to the commercial banks. It covers them with the issue profit. However, all the expenses of the commercial banks are objectively transferred to the end user.

In Russia, the level of counterfeits is about five times lower
There is a constant racing in the electronic payments the hackers try to break into the banking systems, and the security specialists try to invent new security ways. What happens to cash?
Just the same thing. For us, the main competitors in this sense are not those in the market, but criminal competitors. It is they who make us promote new solutions in the security sphere. But the security level of the Russian banknotes now is such that we have quite a low level of counterfeits.
Could you name exact figures?
That is what the Bank of Russia and the Ministry of Internal Affairs fixed in 2014 totally 80,243 counterfeited banknotes were removed. We have 8.5 billion banknotes in circulation now. During the same period, 800,000 counterfeited euro banknotes were detected, but there are 17 billion banknotes in circulation. That is to say, the level of counterfeits in Russia is approximately five times lower.  

Therefore, there is no threat to the cash turnover from counterfeiters. Personally I am more concerned with other threats armed attacks at cash collectors. People die because they transport a couple of million roubles.

Special coins for Transdniestria
We have discussed the banknotes. Let us speak about the coins now. Are the coins gradually discarded in the whole world?  
We have developed a product uniting the durability properties of coins and the security properties of banknotes.  

It is too early to speak about the death of coins. Moreover, many countries are renewing their coins now. Theres something else, for example we have developed a product uniting the durability properties of coins and the security properties of banknotes. It is a product made of composite materials, its commercial name is Plamet, and were watching closely at the moment how it is used in the real circulation in Transdniestria.
Do you print money for Transdniestria?
They print their banknotes themselves, but we offered them a concrete product to replace the banknotes with low face values in 2014. Composite coins produced under the Plamet technology have been in the circulation of Transdniestria for more than a year, since August 2014.
Do you see possibilities of introducing Plamet in Russia?
Strategically, I do, for the low face values. But for the Central Bank to view the idea seriously, it is necessary to have a longer experience of such coins in circulation. It is also necessary to check what costs will be required for resetting the vending machines.
Please tell us about your export. How many countries are there that you execute orders for?

There are more than 20 countries among our customers. The geography of the customers expands. Goznak is working upon large orders of the National Banks of the countries of the African continent, the Middle East, South-East Asia, the countries of Europe and the CIS. Today it seems that Australia is the only continent where we are not present in any way.
How large is this share in your budget?
Thanks to export, we provide ourselves with currency self-repayment.

Its about 20% of income. There is a great advantage in the fact that thanks to export, we provide ourselves with currency self-repayment, i.e. we cover our foreign purchases with the currency we earn completely. Therefore, we are not very afraid of the currency risks.  
However, the importance of export for us is not only in the budget. Our export is a good benchmark to what we do. Our abilities correspond to the requirements of the Central Banks of other countries, and it is important for us.
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