Goznak as one of the leaders of the world banknote business 07.02.2014

The aim of creating high security banknotes necessary for the Russian and world market was solved by us long ago and for a long time

Arkady Trachuk, General Director of Goznak

PLUS: At the beginning of our talk could you describe the present positions of Goznak at the international market? How do you evaluate the perspectives of extending the sphere of influence of Goznak?

Arkady Trachuk: Today the geography of our presence has been enlarged considerably. The banknotes and banknote paper manufactured at Goznak are presented in all parts of the world except for Australia.
Our traditional partners are countries of the South-East Asia: Indonesia, Laos, Cambodia, and Vietnam to a smaller extent. The latter has shifted to plastic banknotes and is now in the process of coming back to the paper substrate. Therefore we hope to return to this market in the foreseeable future. The Bank of Indonesia is one of the oldest partners of Goznak on the international market. Indonesia has its own printing production site, but holds a tender for the production and supply of banknote paper annually. Goznak participates in the tenders and has won the right for the production of banknote paper for a few denominations of the Indonesian banknotes for seven years in a row already.  
China Banknote Printing and Minting Corporation has purchased banknote paper in Russia for three years in the volumes of approximately 10% of the necessary demand of the national market. To a nonexpert the volume might seem not a too sufficient share of the Chinese market. But I would like to note that the Chinese order is a convincing share of the total banknote paper produced at Goznak.
Besides, we produce banknotes for some countries of the Middle East. Recently we have carried out large orders of the Bank of Lebanon and Yemen, as well as the National Bank of Angola (Africa is in the sphere of Goznaks interests too).  
In the African continent there are a few countries traditionally purchasing banknote paper manufactured at Goznak, including the largest country of the continent, Nigeria.  
Nowadays Goznak has also entered the market of the Latin America. We have won a tender in Guatemala for the right of production of banknote with the face value of 20 quetzal and have already executed the order having applied a few security technologies developed by our specialists. We hope that we will be able to increase our presence in the Latin America region.
As for extending the sphere of influence, I would like to draw your attention to the following fact. The traditional market of banknote and coin production does not develop dynamically it is quite stable and comprises 3 5% all over the world. Increasing Goznaks share at the international market of security products automatically means decreasing the share of another player. No wonder there is severe competitive activity at the market.
At the same time, not less important than readiness of a state to work with a certain manufacturer is the position of the said manufacturer, possession of certain patents, ability to offer an interesting set of security features etc. Id like to note that during the past few years Goznak has done a lot to correspond to all the requirements of the international market and form its competitive advantages. As a result, the set of intellectual rights of Goznak makes it possible to fulfill all possible demands of the customers.  
Today Goznak has increased the annual quantity of banknotes manufactured for export from approximately 500 600 million (produced 6 7 years ago) to 1.5 billion pieces. And banknote paper supplies which are a separate item for export have grown from almost zero (in the middle of the 2000s) up to the present 4.5 5 thousand tons.  
There is an important detail: if the specialists of Goznak carry out an export order for the production of banknotes and develop their new design they always base upon the national traditions of a certain country. But sometimes we are asked to print a certain number of the banknotes already in circulation. It is not our favourite job. It is hard to execute such orders there is always a possibility that the banknotes we produce will be somewhat different from the banknotes of the previous emissions, which is very bad for cash circulation, from my point of view. Nevertheless, we have not faced such problems in our practice Goznak always executes such orders successfully.  

PLUS: What is the role and meaning of the design in the banknote production and usage? What could you say about the modern design of the Russian banknotes from this point of view? What are the new world trends of the further development of banknote design?

Arkady Trachuk: From the point of view of the modern printing, the banknote is one of the most complicated products. It is easy to explain: it is necessary to use a few printing methods and a great number of elements securing the banknote and ensuring its durability on a reasonable small piece of paper during the banknote production.
Moreover, the developers should build in the design a few security features which in total would create real complications for money imitating with the application of available equipment. Naturally, all that should be united by a logical idea into an integral composition. The security features should not look like a random set thrown over the piece of paper. Generally speaking, this is our approach to creating the modern banknote design.  
Since the moment of banknote appearance their creators have been solving the task connected with the fact that the person taking the banknotes should be sure that they are real. The modern counterfeiters master the modern copying equipment quite professionally and are aware of the production technology in general. They dont need the details because a counterfeiter aims at imitating the security features but not at their exact reproduction. Moreover, criminals count on a persons inattentiveness or off-market cash processing equipment unable to detect counterfeits reliably enough.  
We know that and develop the banknote so that the design and visual security elements included into the design would be maximally plain and convenient for quick verification, and the set of machine-readable elements would enable reliable identification of banknotes in the machine-readable sphere. To discover the balance seems to be our major task for the nearest years.  
In my opinion, the specialists of the Bank of Russia and Goznak have worked successfully upon the task during the creation of the commemorative 100-rouble banknote dedicated to the 22nd Olympic Winter Games of 2014 in Sochi. During the work upon this first in the Russian cash turnover history commemorative banknote we applied modern design approaches Ive spoken about which may be applied to the creation of ordinary circulation banknotes in the future.  
However, the Bank of Russia is not going to change the present banknotes of the city series radically, because the level of counterfeits is at the acceptable uncritical level.
But if we speak about tendencies, combinations of complicated structures will necessarily be integrated into the banknote paper to add these or those security elements, and the banknote production process will include a few printing methods.
This tendency already exists in many banknotes already. For example, the new 100-dollar banknote of the USA (put in circulation in October) contain two polymer threads one is embedded into the paper, the second thread (or a strip, to be more exact) is laminated on top and contains the kinetic motion security element. The kinetic effects as still quite important for the banknote production and determine their design in many ways because they are spectacular and bright security elements. On one hand, it is great because such elements attract attention at once. But they are the first object of imitation during the banknote counterfeiting.  
Today the general trend in the banknote design is its reasonable sophistication. An approach of this kind seems logic and correct to us. But at present we are limited with the banknote size. Besides, there are certain limitations connected with their design sophistications.
PLUS: In which direction should the cash control systems be developed? What should vendor companies producing special equipment, structures promoting such devices to the Russian market and banks installing them in their networks be prepared to?

Arkady Trachuk: A recent incident with the 5000-rouble banknotes has demonstrated that both banks and equipment manufacturers should constantly work upon creating control systems able to evaluate the existence and location of a few security features on the banknote. Otherwise we will inevitably face forced time constraints of acceptance of certain banknotes and the necessity to make some urgent and special arrangements.
The more security elements the system (ATM) is able to detect at the first stage, the better. At one of the following stages specific characteristics of many security elements are likely to be registered. The registration will reveal whether a certain element is real or imitated. It will create its own requirements to the installed sensors working with specific security elements. Its time to think about it already. Sensors applied to the counting and sorting equipment today register the security element parameters quite accurately. Features considered expert today will be moved down to lower levels and will reach the equipment of the first stage of the system chain (cash office, ATMs or payment terminals) one day.
It is quite obviously a technically complicated task, and we treat the fact that there are miniaturization limits with consideration. Nevertheless, from my point of view, the tendency of the approach to improving the sensors in the banknote accepting devices is the following in general, especially if we speak about ATMs working in the cash-in or recycling modes, and it will be necessary to provide a reasonably high level of banknote authentication. Another tendency in my opinion is that there will appear technical solutions of miniaturizing the sensors currently applied to the counting and sorting systems. At the moment it is certainly not directly connected to the banknote accepting unit of the ATM. But today already there are counting and sorting machines of the small class comparable to an ordinary counting machine applied in every day activity of the commercial banks in size.  
Thus, the combination of the visual image and machine-readable features (and their location in respect to one another) together with registration of separate characteristics of the features determine the direction of solving the problem were speaking about.  

PLUS: Is the security element technological complexity level improvement a real guarantee of impossibility of their digital reproduction by counterfeiters?  

Arkady Trachuk: As you understand digital reproduction does not threaten the machine-readable features. As for the visual features, the situation with them is the following. The classical cash features like UV, IR image etc. are less important now than a few years ago. On one hand, theyre easy to imitate, and on the other there is the so-called human factor, and cashiers mistakes as one of its occurrences. Only the presence of a good set of ordinary visual security helps them to be sure of their work. Therefore today we have two priority directions in which the specialists of Goznak work: further development of visual as well as machine-readable features.  
We aspire to a complex solution to create a design and choose new security elements in such a way to make it impossible to repeat the combination by digital copying. A situation when somebody has scanned and printed a banknote copy using a good coloured printing device is possible, but as a result, a souvenir sample easily identified as a copy will appear. If after that the person moves to another stage and starts placing a hologram in necessary places or do other things to make the counterfeit look more like the real banknote that is counterfeiting with all the following consequences already.  

PLUS: How do you manage to balance between an opportunity of adding new security elements and the production costs of the banknote itself?

Arkady Trachuk: The cost factor is first of all important for the customer. In the present shape of the banknote production, there exists an opportunity for such balance so far. I have no right to disclose the data conserning the costs of the banknotes of the Bank of Russia, but I can say that the cost of production of the cheapest banknotes in the world market is about 30 US dollars per one thousand pieces. And the cost of production of the most expensive banknotes may reach 120 150 US dollars per one thousand pieces. The price depends on many factors: the face value, the number of pieces of the banknote, the aims set by a certain Central or National Bank. For somebody the banknote price is a matter of principle. But, for example, the National Bank of Switzerland has another approach: We want our banknotes to have all the newest and best things on them. They develop many technologies specially for their banknotes, not taking the costs into account.

PLUS: Coulod you draw a concrete example of Goznaks innovative development in the field of new security elements?

Arkady Trachuk: There are quite a lot of such examples, I will tell you of one. Today we have a security element we are quite satisfied with in general: it is the technology of combination of offset and intaglio printing and peculiarities of production of the printing plate correspondingly for one and the other printing method. The elements of the MVC group are quite reliable from the point of view of security against direct copying and scanning and have been applied on the Russian banknotes for over 10 years already.

PLUS: What do you think about the modern substrates applied in the banknote production and the reasons for shifting to polymer. What is awaiting the Russian market in this respect?

Arkady Trachuk: Goznak is one of the largest world manufacturers of banknote paper, and paper substrate meets the requirements of our customers. My attitude to polymer is complex. On one hand, it is quite obvious that the service life of the polymer banknote in circulation increases 2 or 3 times, according to various evaluations. But at the same time the polymer substrate is twice as expensive as the paper! In my opinion, the polymer banknote security level of the polymer banknotes is lower than of those produced on paper, and it is confirmed by the actions of the Central Banks of many countries. They preserve the highest face values of their national currency on the paper substrate, and transfer the low face values which usually wear down in a year to polymer to increase their service life.
There are countries which shifted to plastic completely at first, and then abandoned it resolutely too. Other countries have been using plastic for their banknote printing for a long time and are quite satisfied with it.
Intellectual rights for polymer belong to the Australian company Innova Security, who was the first to introduce the substrate to the market. But after some time their patent security will expire and I see no reason why the polymer may not appear with other manufacturers. All the more so because a number of foreign companies our partners are already bringing to the market similar in composition plastic as a substrate for polymer banknotes. Are there perspectives of implementing plastic in our country? Basing exclusively on my own experience I can say that there are no direct advantages of shifting to the polymer banknote production either from the point of view of security, economy or ecological consequences.  It is impossible to recycle polymer without the corresponding equipment for reworking.
Besides, far from all the banking equipment engaged in the cash processing cycle works with the plastic banknotes correctly, it requires additional adapting. Im sure you and your readers realize the expansion scale of cash processing devices.

PLUS: Whats your opinion about the central banks creating some databases of the numbers of their banknotes in circulation? Is it necessary? Will the existence of such bases complicate the life of counterfeiters?  

Arkady Trachuk: The existence of such a basis is of course an advantage in fighting against counterfeiters, new opportunities of additional control. Especially if some mass throw-in has taken place. But so far I cant see any direct advantage of creating such a basis of banknote serial numbers; more likely, the step is more important for the national banks from the point of view of the cash circulation analysis. Here one can speak about the importance of information about the banknote service life since the moment of its shipment from Goznak and until its destruction. The banknote circulation life and its movement geography from the point of view of cash flows are very important data for analysis. Of course, one cannot trace the banknote abroad, but it is not necessary the banknote will come back sooner or later anyway.  
But in the sphere of the number data basis organization there is a problem connected with their reading during the banknote processing. Yes, there are quite reliable solutions already, but   the statement that there are no difficulties here would be incorrect. It is also necessary to take into account the volume of data necessary to be stored hundreds of billions of records per year. At the same time, it is necessary to realize that the above mentioned data about the banknotes are not informative themselves; there should be a well-considered system of storing, transferring and analysis of data. Otherwise all that has no sense.
As for the commercial banks, I dont think they will be engaged in the process in any way.

PLUS: Would Russia be interested in our rouble to be used as a cash payment means abroad?

Arkady Trachuk: Of course it would be. In a certain sense, the rouble is the second or the third currency in circulation within the territory of the countries of the former USSR. Russia has an ambition to support the usage of rouble as a reserve currency within the larger post-Soviet territory, because there is a direct economic reason for it.  
Source: Magazine Plus
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