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The main thing that has changed for us during the last 200 years is opportunities 29 2018

The main thing that has changed for us during the last 200 years is opportunities

In September, it was 20 years since the day of foundation of the Expedition of Storing State Papers founded by the decree of Emperor Alexander I for the production of currency units protected against counterfeiting. In 1919 the Expedition was renamed Goznak. Today Joint Stock Company Goznak is a modern and dynamically developing company successfully competing in the Russian and world markets of security products manufacturers. After the jubilee celebrations were over, our reporter managed to meet the General Director of Goznak Arkady Trachuk and ask questions about achievements, prospective lines of development of the company as well as the whole cash turnover field in the global context.

Corr.: Good day, Arkady Vladimirovich! Goznak has celebrated its bicentenary jubilee only recently. Moreover, according to mass media, the work at the enterprise did not stop for a single day during that period. However, the world around naturally changed a lot during the past two centuries. How did the companys specialization and business interests change in this regard?

A.T.: It is true that many things have changed during the past 200 years; for the company the existing opportunities first of all. It all started with solving a narrow task of banknote production at a certain enterprise where all the cutting-edge technologies and best specialists were united at the time. That is the only way to ensure the production quality and the necessary level of its security. That was and still is the main idea. We still try to carry out the majority of operations by ourselves, or in-house, as they say now, thus providing the necessary quality at all the production stages.

At the same time, our activity has become much more complicated, multifaceted, answering todays demands. We expand the specialization, attract and master new technologies determining todays life. Including information, information and communication ones; technologies connected with the present production organization, its automation and robotization.

The company becomes more and more complicated from the point of view of both our traditional products (banknotes and ID documents) and services rendered (they already are at the junction of information and printing ones), and from the point of view of the inner organization.

However, we have managed to preserve the main principle that has always been the basis of Goznaks work we possess all competences for providing the necessary security level of our products, they are all created at our enterprise and supported by us. That is our competitive advantage in my opinion.

Corr.: The process of transformation of Goznak into a joint stock company was accomplished only recently. What tasks were solved as a result of this uneasy process from the point of view of increasing the efficiency of the company?

A.T.: We solved the task of creating a legal organizational form clearer for our partners, including those abroad. It also made us more flexible in decision making. Though I cannot say we had any noticeable difficulties in managing Goznak as a federal state unitary enterprise; however, that legal organizational form applied certain limitations in disposition of property and required additional approvals from the point of view of activity in the markets. In my opinion, in this case the fundamental interests of the state believing that a federal state unitary enterprise is not the best legal organizational form in our case coincided with the interests of Goznak a commercial enterprise requiring more business flexibility. I think the company has benefited from its transformation into a joint stock company from the point of view of both the management system and the commercial results in the outer markets.

Corr.: What are the major economic indexes of the companys activity during the past five years?

A.T.: The situation with our indexes was about the same as with the indexes of the Russian economy. In this sense, we are a company dependent on macroeconomic processes. When the economy grows, our business in the banknote production field grows together with it. During the last few years, the growth was not great; there was even a period of decrease. Nevertheless, the company remained profitable during these years. According to the results of 2017, the companys total revenue comprised 38.8 billion roubles, and net profit was 4.2 billion roubles, three times as much as in 2016. The results of 2017 and the expected results of the current year allow us to look to the future with optimism.

The economy has recovered somewhat lately, there have been more orders; moreover, we have boosted the activity on the export markets where we have faced quite a lot of changes during the last ten years. Today, exporting comprises about 20% of our business; it is its important component.

Corr.: What kinds of products are especially desirable abroad?

A.T.: They are banknotes and banknote paper first of all. The share of coins is somewhat smaller, because there used to be certain limitations in production not long ago. However, we have overcome them already by accomplishing reconstruction of the Moscow Mint last year. I think we will pay more attention to the circulation coin exports now.

Corr.: How much has the export volume increased to compare to the previous years?

A.T.: Five years ago, the volume was half as much, and 10 years ago, it was a third as much. It is a very noticeable growth both quantitative (the number of countries and products) and qualitative. At first, the main share was of banknote paper; now ready-made banknotes and coins comprise more than 50%.

Corr.: What do you connect such export increase with, the demand increase?

A.T.: With the competent work of our specialists in the market first of all, as well as with the offer of new interesting products and competitive conditions. We understand that the market is limited in growth potential; however, we still see certain opportunities for ourselves. As I have already mentioned, we are represented relatively thinly in the circulation coin market, but we would like to work in this direction more actively.

Corr.: What most significant projects realized at Goznak recently that would you like to mention?

A.T.: The main result of the year was the opening of a new site of production of banknote and special kinds of paper at the Krasnokamsk Paper Mill. It took about eight years to realize the project, and today the production complex is one of the best in the world. The mill carries out the whole cycle of banknote paper production, starting with cotton consumption and up to preparation of the finished paper to shipment for shipment to the printing factories. The productive capacity of the site is up to 6.5 thousand tons of security paper per year.

Corr.: What are you planning to load the new production site with? Domestic or foreign orders?

A.T.: It is mainly oriented at the companys inner demands it is more interesting for us to sell finished banknotes. Banknote paper supply is objective number 2, after all. Besides, there will not be a drastic volume change we are planning to remove outdated equipment from operation. Therefore, the total productivity increase is expected at the level of 15 20%. It is comparatively low; however, the production process economy will be improved dramatically a new building, centered production, convenient logistics, and one machine instead of two. Our production capacities optimization was the main goal of the project.

Corr.: The new 200 and 2000-rouble banknotes appeared in circulation recently. Besides the new modern artistic design, what are their other qualitative differences from the banknotes designed earlier?

A.T.: The main qualitative difference of the 200-rouble banknote is paper with synthetic coating fully conforming to the criteria of permanent paper in our opinion. We estimate that its service life will increase considerably to compare to other low face-value banknotes. Laboratory tests have shown that the service life will increase by 50-70%. We will see what happens in real life, and not at the laboratory, in a year or a year and a half. Such synthetic paper coating is our know-how, therefore we are not publishing the composition or the application technology peculiarities yet.

As for the 2000-rouble banknote, all the main security features on it are already known; however, they have received additional reading. They include a watermark in which a multi-toned image is directly combined with filigree, SPARK element with the effect of a floating ring, new solutions in the field of traditional features of MVC type and many covert security features. It is a deeply re-worked banknote, and its set of security features is at least not worse than that of the 5000-rouble note, and in some ways even better because of the more modern solutions. Besides, security threads with quite complicated holographic effects that so far have no analogues in the world have been applied on the banknotes. Visual effects of the threads change when the banknotes are tilted, oscillated and observed in transmitted light.

Corr.: Goznak produced a banknote on polymer basis for the occasion of 2018 FIFA World Cup. How was the design developed? Were there any technological problems during the production? Was the substrate also produced at Goznak?

A.T. From the point of view of the design, we had no great problems. Of course, we had to take the peculiarities of polymer into account because we have relatively little experience of its application as a substrate. However, our designers have managed the task successfully and took the basis transparence and opportunities of two-sided design into account where it was necessary.

There were some difficulties during the production because plastic is a relatively new product for us. Besides everything else, we applied the Russian film and primer that made it possible to print with intaglio inks. It was probably one of the most difficult tasks it is known that intaglio inks have low adhesion to polymer. That had been the know-how of CCL Secure for many years substrate preparation to intaglio printing. That was a task we needed to solve.

Corr.: So, is it possible to say that now there are three polymer substrate suppliers in the world, and we are ready to participate in the corresponding tenders?

A.T.: Yes, we are ready to work with our substrate.

Corr.: Do you apply the same machines as for printing on paper?

A.T.: Yes. The whole technological secret is exactly in preparing the film for printing. After that, the process is the same as with paper.

Corr.: Are there any technological limitations in the polymer production?

A.T.: No, thats ordinary polymer. It is in fact simply film produced in large quantities at chemical enterprises all over the world. One can find a lot of products with something printed on polymer film at any shop. The major difficulty is that we apply a few printing methods in the banknote production, and the inks behave differently every time. Intaglio inks are the most capricious they have low adhesion to film due to the application peculiarities and the ink specifics. There is a risk that they will peel off after some time.

Corr.: And why was it decided to produce the commemorative banknote on polymer? In order to demonstrate your abilities?

A.T.: The solutions about banknote issue are within the competence of the emitting institution. Once, we told the Bank of Russia that we now were able to produce a banknote on our own plastic substrate.

In this sense, the Banks reaction was absolutely correct in my opinion we are planning to issue a commemorative banknote, let us try. We showed what a plastic banknote looked like in our execution, and the Bank of Russia received an interesting sample in the set of its commemorative banknotes. I believe the result was quite good.

Corr.: It would be great to learn more about the new promotional banknote dedicated to the 200th anniversary of Goznak. What new developments were applied?

A.T.: The banknote contains a lot of tiny details; however, the main element one should pay attention to is a feature called Silhouette permitting to observe the image transition from negative to positive depending on the viewing angle. We proceed from a premise that the more elements are created using simply the printing methods, without the application of additional materials, the more efficient the production becomes we are more flexible in solutions, we execute orders faster, we depend on external suppliers less.

Corr.: So it can be considered an example of a banknote relatively inexpensive in manufacture, right?

A.T.: It is a relatively inexpensive solution with optically variable features of different kinds colour-shifting and simply optically variable ones supplementing the traditional security elements.

Today, one of the major problems is that the modern science makes it possible to create a machine-readable feature of practically any complexity. It can even be so unique that it will be authenticated by you only and using special equipment. However, for a circulation banknote, the presence of public visual features is crucial, and their set has been somewhat exhausted during the past 400 years. Hence the necessity of looking for new solutions. For the last 15 years, we have been improving the application of combinations of different printing methods and obtaining additional effects helping us to preserve well-known features on the banknotes.

There have appeared a number of elements relatively cheap in production and at the same time quite easy to detect, like Silhouette or HMC (an optically variable security feature developed at Goznak Editors note). We consider it an interesting direction of development of visual security features.

Corr.: How is the production of commemorative coins developing? What new technologies have appeared recently?

A.T.: Mastering the technology of protection of silver coatings from corrosion has become a serious change in the commemorative coin production. Unfortunately, no matter how often we speak about the fact that one should not take a silver coin of proof quality out of its capsule or touch it without gloves, that it needs certain storage conditions, and rapid temperature changes are unadvisable, we are still asked for help with spoiled coins stored without observing the rules by consumers and even commercial banks. Spots appear and corrosion processes start on such coins. Speaking about a coin of pure silver, it is extremely difficult to overcome these problems because the metal oxidizes quite quickly.

Nevertheless, having studied the international experience and elaborated the existing solutions, we have managed to create at least two technologies of protecting silver coins from corrosion. Since last year, we have produced practically all coins in this execution it helps to decrease risks of defects appearing. We are certainly speaking about reasonable storage terms and conditions (in any case, one should not put the coin into an acid); however, our solutions protect from various household influences reliably enough.

Corr.: Some time ago, Goznak presented Plamet technology of coin manufacturing that has already been tested in real circulation in Trans-Dniester. Has it been developed further and how interested are the customers?

A.T.: There are results already, the product is received very well, and emitters of a whole number of countries have shown serious interest in it. Having analyzed the situation thoroughly, we have come to a conclusion that in the case of mass production of the coins (there are customers with quite large volumes of coin circulation) there will appear a few narrow spots preventing execution of the whole set of operations using our own equipment. At the same time, we are not interested in outsourcing of any kind.

Therefore it was decided to bring our production into compliance with the requirements of Plamet coins production technology. This project is realized now. I believe by the end of 2019, we will be ready to supply these products to our customers in necessary quantities. We hope their interest remains during that period.

Corr.: Is it correct to believe that IT technologies are one of the priority directions of the companys development? What is the Data Processing Center? What structures are its potential customers?

A.T.: We can already speak about real customers instead of potential. Among them, there are Federal Treasury, Federal Fund of Medical Insurance, Pension Fund, a number of federal funds and federal executive authorities we focused at their demands and tasks initially and continue to do so. Besides, there are commercial banks among our customers.

For the Data Processing Center, this service is called infrastructure as a service (IaaS) and at the moment it is the main source of our income in the category of information technologies. We create infrastructure including, besides racks, necessary equipment and make it available as a service to our customers. Another project is connected with cloud technologies. In this case, we render services of locating all the hardware part of the clients cloud service. The customers receive everything necessary for the provision of work of their employees and branches that can be spread across the whole country; at the same time, all their information is located at our place. We believe that projects of the kind have a great future and this direction will develop without doubt.

Corr.: Is it possible to say that today, after long international discussions about the expected death of cash and its connection to criminal activity, rehabilitation of the payment instrument as a necessary element of the unitary payment system has finally taken place at the level of states and governments? How do you evaluate the efficiency of International Currency Association (ICA)?

A.T.: There are two questions here. First of all, about the Association. It is great that professionals possessing global experience in the field of production and circulation of cash form a point of view, inform the national banks and other interested parties about the existing views at the payment instrument what changes, how it changes, what opportunities appear The fact that International Currency Association has started functioning is for good, in my opinion. However, to answer the second question, I would like to note that representatives defending the interests of the segment of cashless services are much more active and energetic in promoting the interests of their business. At the same time, it is not the payment method itself that is a problem all those with criminal inclinations found methods of financing their activity with the help of cashless instruments long ago. The world changed in this sense long ago. At the same time, in any case, banknotes have a few major advantages that have not been solved in the cashless segment yet. First of all, the fact that it is the liability of the national, but not commercial banks.

The second moment is connected to the fact that the cost of its circulation for the end consumer is zero. Although economists entertain themselves with calculations of social costs, accounts show that a payment in cash is no different in cost from a debit card payment, and sometimes it is even cheaper. Speaking about a credit card, it turns out many times cheaper simply due to the peculiarities of these instruments.

It is possible to discuss the security of each of the payment means for a long time; however, today the probability of coming across fraudulence in cashless payments is not less but possibly even greater that a risk to come across a counterfeited banknote.

Seriously, in my opinion, the only problem with cash is that it is an offline instrument in its nature. There is no way to turn it into an online payment shape. However, the life itself has changed so much that there is a demand to make online purchases on a real-time basis to pay for tickets to theater, train or plane, order some services via internet here and now. That is the task cash do a poor job of accomplishing.

On the other hand, this disadvantage is an advantage at the same time during infrastructure failures, cash remains the only instrument working efficiently.

Another moment. While we continue existing partially or principally in the offline world, there will be place for cash at the payment market. It is possible that the national banks will be able to offer an alternative in the shape of electronic money emission eventually. However, that will affect not only cash on the whole, but the whole interconnection architecture between the central and commercial banks, i.e. the classic two-level banking system. However, that is already a topic for a separate talk.

From my point of view, we are witnessing a fundamental change in the payment relations, and instruments of different kinds permitting us to live in the world of internet will affect and diminish the sphere of cash application. However, cash payments remain not less demanded and not less wanted in their segment, therefore the task of improving the payment circulation instruments will remain acute within the next 10 or 20 years.

Corr.: Can there be a quantum leap connected to the emission of electronic fiat money?

A.T.: Absolutely. There are no realized projects yet, but there are discussions. There is a position of the National Bank of Sweden that is trying to construct the electronic krona. Some experiments have been a failure for example, in Ecuador they scrapped the project of launching the electronic national currency. Nevertheless, the topic remains a discussion subject at many national banks.

However, at the moment even in Sweden that declared the thesis about a cashless state long ago, the national bank announced only recently that it would make the commercial banks support the infrastructure of cash payments, especially in districts far away from the center. In my opinion, it is an absolutely clear answer to the question, whether there has been a change in respect to cash. There has appeared an understanding that cashless payments are not an absolute and universal answer for all of life's emergencies. Yes, they are convenient, and sometimes a person really can do with cashless instruments only, especially if he lives in a big city with extensive infrastructure. What about a village where there is only one shop with an out-of-service terminal, and the other nearest is 10 kilometers away, and its great if only 10 kilometers away, or in the case of such complicated situations as natural calamities or industrial disasters? It is impossible to cover 90% of life situations with payment services, and leave 10% to their fate. It is necessary to cover all the 100%. Therefore, in my opinion, cash has a stable niche in the segment in the near future. The segment is not so small after all, especially in the context of our country with its geographic peculiarities and high costs of cashless transactions. Besides, equipment and connection, as well as regular upgrade of the equipment, are necessary for cashless payments. And if for a large retailer or a bank these costs are not great against the background of other operations, they are quite noticeable for small shops.

When services become cheaper and more convenient, for example, the system of quick payments the Bank of Russia is currently speaking about will start working, the task will become somewhat simpler.

To summarize, I would like to say that we are definitely witnessing a fundamental change in the payment habits determined by something else than the fact that people have just stopped liking cash. The environment in which we live has changed together with preferences in the payment sphere. And the more progress there is, the more our payment priorities change. However, we must provide the work of the payment system in any conditions.

Corr.: Arkady Vladimirovich, let me thank you for an informative talk and wish new success to Goznak!

Correspondent Maria Klysh

Translated by Tatiana Ugryumova

Source: Banknotes of the Countries of the World No. 12/2018
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