Abstract

http://ssrn.com/abstract=1652173
 
 

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Production Costs, Seigniorage and Counterfeiting: Central Banks’ Incentives for Improving Their Banknote Technology


Yassine Bouhdaoui


Vrije Universiteit Brussel

David Bounie


Telecom ParisTech

Leo Van Hove


Free University of Brussels (VUB)

March 13, 2012


Abstract:     
In recent years, numerous central banks throughout the world have introduced plastic banknotes in order to combat counterfeiting and reduce their operating costs. In this paper, we provide an analytical framework that allows central banks to assess whether changing the manufacturing material of their coins or banknotes would be beneficial. We use this framework to estimate, for the case of the U.S. Federal Reserve, the potential operating gains and the break-even horizon of the adoption of plastic banknotes. In our benchmark scenario, we find that a complete adoption of plastic notes would save the Fed $140 million per year, and that the $1 bill would be the most lucrative to replace.

Number of Pages in PDF File: 49

Keywords: Central Banks, Counterfeiting, Plastic Banknotes, Production Costs, Seigniorage Revenue

JEL Classification: E4, E47

working papers series


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Date posted: August 2, 2010 ; Last revised: March 14, 2012

Suggested Citation

Bouhdaoui, Yassine and Bounie, David and Van Hove, Leo, Production Costs, Seigniorage and Counterfeiting: Central Banks’ Incentives for Improving Their Banknote Technology (March 13, 2012). Available at SSRN: http://ssrn.com/abstract=1652173 or http://dx.doi.org/10.2139/ssrn.1652173

Contact Information

Yassine Bouhdaoui
Vrije Universiteit Brussel ( email )
Boulevard de la Plaine 2
Ixelles, 1050
Belgium
David Bounie (Contact Author)
Telecom ParisTech ( email )
46 rue Barrault
F-75634 Paris, Cedex 13
France
Leo Van Hove
Free University of Brussels (VUB) ( email )
Pleinlaan 2
APEC 2C147
Brussels, B-1050
Belgium
+32 2 629 21 25 (Phone)
+32 2 629 20 60 (Fax)
HOME PAGE: http://www.vub.ac.be/ACCO/
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