Banknote Printing at Modern Central Banking: Trends, Costs, and Efficiency

Money Affairs, Vol. 21, No. 2, pp. 217-262, 2008

Borradores de Economia Working Paper No. 476

50 Pages Posted: 2 Mar 2012

See all articles by Jorge E. Galán

Jorge E. Galán

Banco de España

Miguel Sarmiento

Tilburg University, CentER, European Banking Center (EBC); Central Bank of Colombia

Date Written: December 1, 2007

Abstract

This paper examines trends in banknote printing during the period 2000-2005 for a crosssection of 56 central banks. Because of the high increase in the demand for currency in recent years, central banks have implemented new strategies to increase efficiency in the production of banknotes. Some of them, involve the private sector by means of different modalities (e.g. joint ventures, subsidiaries or purchase of banknotes from specialized companies), and the integration of banknote printing and cash processing in a single complex (e.g. Portugal and Colombia). A cost function using a panel data model with random effects was estimated. It was identified that the denomination structure, the size of banknotes, and the production method used by central banks have a significant impact on production costs. Government printing was found to be the most costly method, while private-sector involvement in the process substantially reduces production costs. Using a non-parametric efficient frontier model, it was found that most central banks have increased its technical efficiency during the period, especially in central banks where the privatesector has involved. Computing a Malmquist index through distance functions it was identified that central banks have showed a moderate increase in its productivity, primarily due to increases in efficiency and, in a lower proportion to technical change. In most of the cases, a positive change in efficiency is mainly the result of higher scale efficiency. This could obey to high increase in demand for currency.

Keywords: central banks, banknote printing, efficiency frontier, cost function, panel data, malmquist index

JEL Classification: E50, C33, C23, C43

Suggested Citation

Galán, Jorge E. and Sarmiento, Miguel, Banknote Printing at Modern Central Banking: Trends, Costs, and Efficiency (December 1, 2007). Borradores de Economia Working Paper No. 476. Available at SSRN: https://ssrn.com/abstract=2014632

Jorge E. Galán (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Miguel Sarmiento

Tilburg University, CentER, European Banking Center (EBC) ( email )

Tilburg
Netherlands

HOME PAGE: http://https://scholar.google.com/citations?user=n2FzTYAAAAAJ&hl=es&oi=ao

Central Bank of Colombia ( email )

Carrera 7 #14-78
3551 de Bogotá
Colombia

HOME PAGE: http://www.banrep.gov.co/

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