Will Canada spur others to adopt polymer banknotes?

This is not the first blog relating to Canada's move to polymer notes, but I thought you might be interested in Banking Automation Bulletin's take on the issue.

Canada’s announcement that it will be issuing a new polymer $100 banknote in November 2011 and plans to roll out a full set of polymer denominations by the end of 2013 is highly significant.
 
Canada has become the largest and first G8 country to embrace polymer notes. Although more than 30 countries have such notes (often only for lower denominations), this is the most high profile adoption since Australia in 1996.
 
The move to polymer has been prompted at least in part by the rapid rise in the level of counterfeiting of Canadian banknotes in the early 2000s, reaching a peak of 470 per million in 2004 – the highest level in the developed world at the time. The level has fallen back since, but still remains a concern.
 
Advocates of polymer notes make two main claims:
 
1) They last two to three times longer than traditional cotton paper notes, substantially reducing costs of printing, issuing and removing notes from circulation.
 
2) They provide greater protection against counterfeiting.
 
The first claim is relatively unambiguous, although upfront costs are high, and there are substantial costs for merchants, banks and others that will need to modify equipment, train staff, etc.
 
The second claim is more debatable. Countries that have fully or partially switched to polymer notes report significant falls in the proportion of counterfeit notes in circulation. This may well be because in the short term fraudsters prefer to employ their skills and equipment in countries using traditional notes, rather than reinvest for polymer. As more countries switch to polymer this will surely change.
 
Critics of polymer argue that notes are more likely to tear, especially when crumpled, and that the ink has a greater tendency to wear off. There is also concern that there is only one manufacturer of the BOPP substrate used for polymer notes – an Australian company called Securency, which has been under investigation in Australia regarding allegations that the company bribed officials in several countries in order to secure banknote contracts. Relying on a single supplier is never ideal, particularly one that is surrounded by controversy.
 
Other countries will be watching the Canadian experience with interest – not just the financial and security implications, but also how the public responds to the change.

Reprinted from Banking Automation Bulletin (see www.rbrlondon.com/bulletin for more information).