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EGLOBALMAGAZINEOFDELARUE

Reasonsto celebrate

AUTUMN 2012:

CASH CYCLES THAT WORK FOR EVERYONEENTREPRENEURS ON THE NEW FRONTIER

ENFORCING THE LAW ON A GLOBAL SCALE

300 YEARS OF PAPERMAKING


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AUTUMN 2012:

EXCHANGEIS DESIGNED TO BE A FORUMFOR ALL THOSE INVOLVED IN MAINTAININGSECURE TRANSACTIONS WORLDWIDE.WE WELCOME CONTRIBUTIONS ANDSUGGESTIONS FOR THE FUTURE.PLEASE SEND THEM TO: [email protected]

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3/281EXCHANGEAUTUMN 2012DE LA RUE

COUNTING EVERYONE MEANS

EVERYONE COUNTSHOW BIRTH REGISTRATION UNDERPINSMODERN LIFE

2

CASH CYCLES THAT WORK

FOR EVERYONEALL OVER THE WORLD CASH CYCLESARE EVOLVING

12

LETS CELEBRATE BUT NO HICCUPSCOMMEMORATIVE CURRENCY AND STAMPS

ARE USED THROUGHOUT THE WORLD

ENTREPRENEURS ON THE NEW FRONTIERHELPING TO FOSTER YOUNG BUSINESSES

CLEAR FUTURE FOR BANKNOTESPROVIDING BANKS WITH NEW LEVELSOF ANTI-COUNTERFEITING

4

22WORLD VIEW300 YEARS OF PAPERMAKING

QUALITY BANKNOTESA PARTNERSHIP APPROACH

ENFORCING THE LAW ON A GLOBAL SCALEKEEPING ONE STEP AHEAD OF COUNTERFEITERS

AND ILLICIT GOODS CRIMINALS

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6

WORLD VIEWNEWS AND EVENTS AROUND THE GLOBE

24



IDENTITY

BIRTH REGISTRATION

Do you know who you are?Thats not a philosophical question.Its a question of evidence.

Counting everyonemeans everyone counts

In the developed world we take many thingsfor granted. For example, that when you areborn, your birth is registered. Registrationmight seem a trivial event even aninconvenience for a new parent with otherthings to do. But, according to Nobel PeacePrize winner Archbishop Desmond Tutu,

a birth certificate is a small paper that actuallyestablishes who you are and gives accessto the rights and the privileges, and theobligations, of citizenship.

Birth registration enables you to proveyour age and nationality. This in turn can giveyou access to education and healthcare.It means you can open a bank account,obtain a passport or driving licence, inheritmoney or property and vote.

It quietly underpins not only your lifebut also the social structure of which youare a part. Because governments, too, needsystems for registering births and deaths.Without knowing how many people you areresponsible for, developing long-term policiesfor health and education, employment,housing and infrastructure becomes little morethan guesswork. Furthermore, governmentsseeking aid from the international communityare often required to provide statisticalevidence of need.

According to the United Nations Conventionon the Rights of the Child, every child hasthe right to a name and nationality, and itis the responsibility of national governmentsto enable this.

But many cant and dont.

Quite apart from factors such as conflict,cultural attitudes and remoteness, registeringso-called Vital Events births and deaths,marriages and divorces requires administrativesystems that are beyond many countries.

Despite the fact that 191 nations haveratified the UN Convention, the births of millions

of children worldwide go unregistered. Figuresare by their nature approximate. ButUNICEF estimates that around 50m births ayear are not registered. This represents around40% of all births worldwide and includes around70% of children born in sub-Saharan Africa.

Not that this is only an African problem:gaps in coverage occur on all continents.According to the UN only 60% of countriesregister at least 90% of births. And the picturefor the registration of deaths is considerablyworse with only 47% of countries having morethan 90% coverage.

In fact in some countries, the registrationof deaths is virtually non-existent. Yetinheritance rights are dependent on recordsof death; and cause of death statisticscan be of huge importance not only in thedevelopment of social policies for nationalgovernments, but also for health responsesfrom international agencies.

Births and deaths have been recordedin one form or another throughout humanhistory, though the UK was the first countryto make their registration compulsory. Thatwas in 1874 at a time when Britain alreadyhad an established bureaucracy capableof administering a global empire.

Many countries still dont have thatorganisational capability, and even in the UK,linkages between one part of the identitysystem and another are still incomplete.

This is a difficult issue and the UN, whichin September 2012 sponsored a conferencein Durban for African ministers responsible forCivil Registration and Vital Statistics (CRVS),

has identified more than 100 problems facingcountries wishing to set up effective CRVSsystems. It has broken these down intothree categories: the relatively intractable;the solvable with additional funds; and theimmediately solvable.

Intractable problems include profound

communication difficulties in countries withlargely rural, illiterate and sometimes nomadicpopulations.

Immediately solvable problems wouldsee governments introducing adequatelegislation, co-ordination between governmentdepartments and sufficient prioritisation of theissue. This would be inexpensive though notnecessarily straightforward.

Some problems, however, could besolved with money and external help. Thiswould often involve training of local peopleand the availability of reproduction and dataprocessing equipment.

Major IT companies have looked at thismarket with approaches that offer large-scaleintegrated systems. But, says Sophie Taylor, abusiness development manager at De La Rue,that isnt the approach that De La Rue is taking.We have considerable experience of identitymanagement, and are offering a frameworkand methodology that governments can thenrun themselves.

Instead of going for global systemsintegration, we are looking to start small andkeep it simple. Our approach is a databasemanagement system that is scaleable andsustainable something that can be managedlocally using local resources.

While collecting statistics alone will notsolve the problems of the developing world,failure to collect them can certainly makesolutions harder to achieve.



a birth certificate is a small paper thatactually establishes who you are and givesaccess to the rights and the privileges, andthe obligations, of citizenship.

ARCHBISHOP DESMOND TUTU

INSTEAD OF GOING FOR GLOBAL

SYSTEMS INTEGRATION, WE ARELOOKING TO START SMALL ANDKEEP IT SIMPLE. OUR APPROACH IS

A DATABASE MANAGEMENT SYSTEMTHAT IS SCALEABLE AND SUSTAINABLE

SOMETHING THAT CAN BE MANAGEDLOCALLY USING LOCAL RESOURCES.

SOPHIE TAYLOR, DE LA RUE

DATA CAPTURE TOKEN ISSUANCEDATABASE

MANAGEMENTREPORTING



CURRENCY

WINDOWS IN BANKNOTES

Clear futurefor banknotes

Having banknotes that are durable, hard tocounterfeit and containing security featuresthat are immediately recognisable to the publicremains the holy grail for central banks across

the world. The increasing range of windowsin banknotes for both paper banknotes andpolymer is providing banks with new levelsof anti-counterfeiting complexity.

The Reserve Bank of Australia led theway with the launch of a clear window ona commemorative $10 polymer note backin 1988. As well as being an attractivedesign element that was incorporated intothe banknote design, it has also proved tobe an effective security device. The clearwindow was subsequently used throughoutthe denominational range on Australiascirculating notes and today Australia has oneof the worlds lowest rates of counterfeit note.

Australias success prompted De La Rue tointroduce a revolutionary new product calledOptiks in 2005, the first window product forpaper banknotes. Optiks is an 18mm-wide

security thread inserted into the paperand the window is created as part of thepapermaking process. To reinforce just howsecure these notes are, an independentcounterfeit assessment for Optiks showedthat it would take a counterfeiter nine differentsteps to create an effective imitation.

Following De La Rues innovation, a numberof other paper manufacturers have developedsimilar products Louisenthal introducedvarifeye (a hole formed during papermakingwhich then has a foil applied onto it) anda version called TWIN where the hole is lasercut. KBA has developed a feature calledOptiwindow which is produced in a similar

way to TWIN although manufactured in theprint works. Other companies have alsodeveloped similar products although nonehas been successfully sold to date.

Optiks is the most successful of the paper-based windows with currently more than 200million notes in circulation in nine countries.

The launch of the Bank of Canadas new

family of polymer notes in 2012 representsa big leap forward for the windows inbanknotes. The notes feature a dramatictwo-sided hologram in a large window, whilea smaller frosted maple leaf window containsa diffractive element that can be viewed witha light source. In addition this is the first timethat a clear window spans very nearly theentire height of the note. The Bank of Canadacan be justifiably proud of the new family ofnotes which are visually strong and combinethe strengths of durability and security thatpolymer is known for. With an increasingrange of window options available for bothpaper and polymer banknotes, it seems that

Central Banks will be spoilt for choice whendesigning and printing their future currency.

Windows in banknotes have been around a whilebut the increasing range of options for central banksand the launch of the Bank of Canadas new rangeof polymer notes mean that windows in banknotesmay be coming of age.



TO REINFORCE JUST HOW SECURE THESENOTES ARE, AN INDEPENDENT COUNTERFEIT

ASSESSMENT FOR OPTIKS SHOWED THATIT WOULD TAKE A COUNTERFEITER NINE

DIFFERENT STEPS TO CREATE AN EFFECTIVE

IMITATION.

IMAGE USED WITH PERMISSION FROMTHE BANK OF CANADA



COMMEMORATIVES

CELEBRATING SPECIAL EVENTS

Everyone likes a reason to celebrate. While some ofus will use any excuse, others such as central bankshave to be a little more circumspect. Nonetheless,special events are commemorated throughout theworld in banknotes, coins and stamps.



The UK in 2012 has had a bumper year ofreasons to be cheerful not least the QueensDiamond Jubilee and the Olympic Games.But 50 years of independence is just as

important for Trinidad & Tobago, and at theend of last year Bhutan had its own RoyalWedding to celebrate.

Exchangeasked Phajo Dorjee, Director ofthe Currency Management Department at theRoyal Monetary Authority of Bhutan (RMAB),why the bank had decided to celebrate thewedding with a new 100 ngultrum note.This was a once in a generation event,so we did it as a tribute to our King. Althoughwe have issued lots of commemorative coinsin the past, we had relatively little experienceof producing commemorative notes, andwere interested to learn.

And one of the things we did learn

was that next time we will give ourselvesmore time!

The wedding note was produced start tofinish in little more than 3.5 months. This isan exceptionally tight timetable. A more usualschedule would run from 12 to 18 months.

Letscelebrate but nohiccups

Such lengthy timescales are requiredfor reasons beyond issues of design andproduction. For example, it is often necessaryto get Cabinet approval to produce a

commemorative, and in some countriesa change in the law is required.

But why do countries issuecommemoratives, and what do they hopeto achieve with them?

It is often a matter of national pride a reflection of the achievement and historyof the country and a demonstration of thestage of development that it has reached.

There is, for example, a current spate ofcelebrations in the Caribbean, as a numberof countries that were once British coloniescelebrate 50 years of independence. In June,Trinidad & Tobago issued a $50 commemorativenote and a new $50 circulation note to

celebrate its 50th anniversary.In July, Jamaica launched a full set of

notes to celebrate its 50th anniversary ofindependence. Four years ago, the countryrecognised Usain Bolts three gold medalsat the Beijing Olympics which made him

Continued on page 9

A QUEENS DIAMOND JUBILEEThis year the Royal Bank of Scotland hasissued a 10 commemorative note in an editionof 2 million to celebrate the Queens DiamondJubilee. The note is dated 6 February theanniversary date of her accession to the thronein 1952.

Jersey has also issued a Jubilee note a trulyspectacular 100 banknote which is the firsttime that a note of this value has been issuedby the islands government.

De La Rue designers have incorporated a3-D hologram portrait of the Queen, that theStates of Jersey commissioned in 2004 to

commemorate the 800th anniversary of theislands independence.

Senior designer, Mike Wheeler, who led theDe La Rue team on the project, says that rightfrom the start, it was clear that the States ofJersey knew what values it wanted the notes toconvey, namely the international standing of theisland, its financial strength, commercial integrityand loyalty to the Crown.

the most famous Jamaican since Bob Marley with a limited edition J$250 gold coin. Thisis available to collectors from the Bank ofJamaica for US$900.

A central bank is almost a necessaryprecursor of independence. Countriessuch as Belize and Barbados have alsorecently celebrated the anniversary of theestablishment of their central banks byissuing commemorative notes.

The generation of revenue is anotherimportant factor in the production ofcommemoratives.

Banknotes are part of a global collectorsmarket, with so-called numismatists preparedto pay considerably more than the face valueof a note. Last years Bhutan Royal Wedding100 ngultrum note, for example, has a facevalue of around 1.10p. But, because it is a

limited edition, it is being sold by dealers for25. The States of Jersey 100 note, issuedto celebrate the Queens Diamond Jubilee (seeabove), is also available to collectors at 165.



Continued from page 7

De La Rue was the only supplier that couldmeet the timescales for the delivery of BhutansRoyal Wedding note.



To add to the attraction of the commemorativesand make them suitable for gifts, they areoften available in specialist packaging, therebyfurther enhancing their value.

Islands such as Bermuda and the CaymanIslands are popular destinations for cruiseships, and they sell sets of currency to touristsat a premium.

Collectors collect for any number ofreasons, but one is that banknotes are seenas a sound investment. According to onedealer, if you had invested $1,000 in US andworld collectible currency notes in January2002 when the euro was introduced, six yearslater your collection would have increasedin value by 50-70%.

That is a good return though not asgood as that achieved by the owner of oneof the only two surviving Grand Watermelon

banknotes a US$1000 note from 1890 which was sold at auction in 2006 for$2.25 million.

Commemoratives are a businessopportunity, and creating a profit is onereason why Royal Mail in the UK has been

PLANNING A COMMEMORATIONWhether its issuing a commemorative banknoteor launching a brand new currency, successdepends on comprehensive planning andmeticulous attention to detail.

Whatever the project, timing is crucial. It cantake several years to launch a new currency:but issuing a commemorative note still requiresa lead time of up to 18 months. The initial planningstage, for instance, will involve considerationof whether parliamentary or legal authority isrequired and who will have the final approval.

Designing any new banknote includes twodistinct phases: concept design and design

realisation. The concept stage is where all theideas of what the note should look like themes,imagery, colour, security and machine-readablefeatures are brought together.

Once the concept has been approved by thecentral bank, the project moves on to the designrealisation process. Now the initial design ideasare transformed into an attractive, secure andmanufacturable banknote. It is by far the longerpart of the process taking around 3,500 manhours, compared to 500 hours for concept design.

Design realisation covers paper specification,watermark, security thread, hologram and arange of specialist printing processes, all ofwhich contribute to the banknotes securityand durability. Once all these elements havebeen finalised, a proof of the note is createdfor the customer to approve and the factoryspecifications for printing are drawn up.Quality control checks are carried out regularlythroughout the whole process from conceptto production.

Finally, in preparation for the launch, the publicmust be kept informed about the new issueand everyone involved in handling the note including bank cash handlers, retailers, customs,trading partners, police and currency exchanges adequately briefed.

BANKNOTE OF THE YEAR AWARDWinner of the International Bank Note SocietysBanknote of the Year is the commemorative10,000 Tenge note issued in July 2011 tocelebrate 20 years of independence for theRepublic of Kazakhstan.

The note was designed by the National Bankworking in close collaboration with De La Ruesworld-class design team.

The front of the banknote, which is in a verticalformat, depicts the Kazakh Eli monument,the national emblem and the national flag,along with images of doves flying. The reverse,which features the Residence of the President,

is in a horizontal format.This is not the first time that the distinctive

banknote designs of the Kazakh National Bankhave received international recognition, andits Chief Designer, Mendybai Alin, is knownworldwide for his individual design style.

Steve Pond, the De La Rue designer whocollaborated with Mr Alin, said: Working witha national designer gave me a much greaterinsight into the culture and essence of thecountry than I could have achieved workingalone. I am sure the closeness ofour collaboration was an important factorin enabling us to win this award.

This is the ninth design award that De La Ruehas won in the past five years, a record of whichthe company is justifiably proud.

THINK BACK TO THE YEAR 2000Because of where the sun rises and theInternational Date Line Fiji was one of the firstplaces on earth to see in the new millennium.And to celebrate the fact, the country produced

2000 notes with a face value of $2,000, and asunrise design on the reverse.

Though they were legal tender, they wereaimed at collectors and sold at a premium.Fijis standard range of denominations is from$2 to $100, and at face value a $2,000 noteis worth around 700.

The country also issued a commemorative$2 note featuring a Y2K design on the front.

issuing special stamps since 1965, accordingto Head of Production Martyn Fry. We arepart of the world-wide philatelic industry.

Of course there are other drivers.

Promoting the UK is one: the subject matterof our stamps must clearly reflect Britain,British society, and the British way of life.And we also want to make a wider audienceaware of the subject matter.

Not that this years Diamond Jubileewould have gone un-noticed. But it was alsoan event that could be planned for well inadvance. The funnel of subjects we celebrateis started up to two years before stampsare issued, Martyn says. However we alsoproduce fast track issues such as Englandwinning The Ashes series against Australiain 2011 when it was just a matter of weeksbetween deciding to issue stamps and them

going on sale.The 2012 Olympics illustrates both

aspects of our approach. There has been aseries of issues in the build-up to the Games and stamps celebrating British gold medalwins were in post offices the day after the win.

Having a supplier who can deliver to suchdeadlines is clearly a factor for many issuingauthorities, and Phajo Dorjee says thatDe La Rue was the only supplier that could

meet the timescales for the delivery ofBhutans Royal Wedding note.

Defining what success looks like fora commemorative issue is a difficult one,Phajo says. Success will depend on yourstrategy. We will carry on selling the notesover a long period of time, which will providea long-term income flow.

For Martyn Fry at Royal Mail, successis based on Public reaction, the diversityof subjects and the business outcome.

And Matt West, who as a regionalmanager for De La Rue looks at this froma customer service point of view, says:When a commemorative banknote is issued,

the customer wants the public to like it.But they also want the launch to runsmoothly with no hiccups.



If we ask a central banker to define thequality of the banknote he wants, how doeshe answer? How does the supplier translatethat answer into action during production?

The starting point is, without doubt,a shared understanding of the productsrequirements and of how it is made.

A banknote is a highly complex document,bringing together different productionprocesses and materials in many layers ofcomplexity. To illustrate this consider thatwhen banknote paper is delivered to the printworks, in addition to watermarks and securitythreads created in the paper, the paper oftenalready incorporates silk screen-printedsecurity features, gravure coatings, applied foiland a wide range of security features used bymachines that handle banknotes from vendingmachines through to large sorting equipment.At the print works it can go through a furthersix different printing and application processesbefore it is cut. Bearing in mind that banknotesare manufactured by the million and whenin circulation inspected by machines andhandled by the whole of society, how is thenecessary quality achieved?

The answer lies in a coalition of manywilling partners who control the many complexsteps involved: customers, designers,production staff, suppliers (of machines,paper, ink and other components) on the onehand, and technology, processes, machinesand quality assurance on the other. Whenthese elements are out of kilter, inefficiencies,delayed deliveries, higher cost, and even faultybanknotes delivered to the customer, may bethe result.

Know what is being madeIt may sound obvious but the importanceof a clear specification, with the parametersclearly understood by all parties, cannot beunderestimated. Suppliers vary considerablyin their equipment, materials and knowledgelevels, so they need to understand the

specification to be sure that they can produce it.It is unlikely that all elements of a banknote

design will be of equal importance. If thecustomer can be clear on which criteria arecritical to them, it will help the designer to focusprincipally on those areas. This can make areal difference not only to what is deliveredbut to its cost. Success requires a level oftrust and understanding between supplierand customer if real clarity is to be achieved.

Design and riskGood design can go a long way to reducingcost without compromising banknote quality.For example, the normal cutting toleranceof an automatic full sheet finishing machineis +/-1.5mm (if reduced to only +/-1mm,the absolute minimum, waste will increasesignificantly). If you design the banknote witha white border around the outside, the designwill float, with the white border increasing ordecreasing by 1.5mm. Will this be acceptableto the customer? A good supplier will alwaysdetermine what his equipment can produceand write this into his design rules and ensurethe customer understands what is possible.

Today best practice for the manufactureris to carry out a risk analysis on the designbefore getting customer approval. The suppliershould also explain to the customer any aspectof the design or proof approval process thatcould have implications for production. Thisis particularly important as, to save time andexpense, the proof is not normally producedon full-size production machines.

CURRENCY

PRODUCTION AND QUALITY ASSURANCE

Quality banknotes:a partnership approach

Physical inspection is only one aspect of producinga banknote of quality. The key to success is effectivecollaboration between all those involved.



The importance of preparationBefore production starts the factories needclear guidance on every part of the job. Ifthe same banknote has been made before,what lessons have been learnt? Are therequirements of the design and specificationclear? As part of the preparation the quality

and manufacturing team will undertake aprocesses risk analysis using FMEA (FailureMode Effects Analysis) in order to anticipateand seek to mitigate any areas of difficulty.

In a sense, todays printer is an integratorof technology. He combines paper, inks,applied features and printing processes tocreate the whole. To do this he depends onexternal suppliers to deliver these elements,so how they are managed is key to success.Suppliers must prove they can deliverconsistently and to a high quality. A qualitycontrol plan will also ensure materials qualifyagainst certain parameters and that checksare carried out on incoming items (such aspaper, ink, foil, plates, dies and numberingboxes) based on perceived risk at theplanning stage.

Production and quality assuranceThere are three key elements to gettingproduction right.

Processesthat make sure that what ismade matches the customer specification,including for security. International standardssuch as ISO9001 explain how to build

processes into the way the factory operates.Peoplewho are trained, experienced,

properly equipped and supervised usingclearly defined standard operating procedures.

Compliance,so that the standards andvalues of the organisation can be rigorouslyaudited. Leadership and great front-linesupervision are key to this.

The quality department draws up a qualitycontrol plan with the operational staff, usingthe customers specification and the resultsof any risk analysis. This ensures consistentquality throughout production and canstipulate some or all of the following: full sheet inspection systems tted to the

printing presses that compare the banknotesto a standard and then reject sheets witherrors as part of the printing processes

automatic machine-based full sheetinspection of finished banknotes afterprinting but before numbering

manual inspection after different stagesof production

random sampling of nished banknotes fromeach batch based on ISO2859, checkedboth visually and using test equipment.ISO2859 is an international standard forsampling inspection by attributes

depending on customer requirements,a Single Note Inspection Machine (SNIM)may also be used for 100% inspectionof finished banknotes.

Partnership is keyBut all the inspection in the world is unlikelyto be enough unless everyone who plays apart in producing a banknote works togetherto focus on quality. That means right fromthe start, when the customer and supplieragree what is required. The design must work

within the capabilities of the manufacturingequipment and process. There must be greatpreparation at the factory. Quality assuranceof both incoming materials and the productionprocesses in the factory must be robust,systematic and well organised for whichthe manufacturer has a wide range of toolsand options from which to select. Even whenall this is in place, true quality will still only beachieved with great partnerships.

BANKNOTE APPROVED BANKNOTE REJECTED DUE TO THE LINEBREAKS IN THE ORBITAL RINGS



CASH PROCESSING

MANAGING THE CASH CYCLE

Stakeholders

CENTRAL

BANKS

RETAILERS/BUSINESS

CIT ANDCOMMERCIAL

BANKS

LAW

ENFORCEMENT

CURRENCYPRINTERS



The need for changeBut the pressures on central banks are evergreater. The banking sector is complex, andthe sheer volume of cash and its increasinglycomplex circulation patterns can generateconsiderable inefficiencies in the cash cyclewhich the central bank alone is responsible

for sorting.For these reasons many central banks are

taking the view that some of their activities,such as the sorting and storing of currency,can more sensibly be delegated to some ofthe commercial sector players in the cashcycle. These typically include wholesalecash handlers such as commercial banksand cash-in-transit companies (CITs), whoin turn interface with ATM service companiesand retailers who provide customer-facingservices (bank branches, shops, transport,and vending).

What is absolutely non-negotiable is thatcentral banks retain control and visibility ofcurrency as without this they cannot fulfiltheir primary duty as guardians of its qualityand integrity. However, increased non-centralbank involvement in the cash cycle canmake achieving this control more complex.There is no single correct way of achievingthe balance between efficiency and control,and four generic cash cycle models areevolving that differ in their approach to cashdistribution, processing and re-circulation.Whilst ultimately driven by central bank policy,and with the paramount goal of maintainingthe integrity of the currency, each model hasa different approach to improving efficiencyand will depend on factors such as thecommercial environment and logistics.

Cash cycles that

work for everyone

All over the world cash cycles are evolving.Exchangelooks at the nature of, and reasonsbehind, the shift. What do central banks need toconsider to make sure the changes work to theiradvantage? And what about the needs of the otherstakeholders in the cash cycle commercial banks,

cash-in-transit companies, retailers etc?

Despite the popularity of online and otheralternative methods of payment, cash incirculation is still on the increase. As a resultof this and other pressures, such as the needto supervise financial markets, some centralbanks are re-examining their role in the cashcycle and transferring some of their activities

to the commercial sector.Legal, historical, operational and economic

factors all influence how a countrys cashcycle develops. An effective cycle from thecentral banks point of view is one in whichthere is an efficient flow of cash between allstakeholders, where the notes and coins aredeemed fit for practical use and, above all,where there is inherent trust in the currency.

In most countries central banks are thesole issuers of new currency. Their other corefunctions can include the destruction of unfitcurrency, and responsibility for the securityand availability of cash. Traditionally, theyhave also taken on the processing of cashto determine its fitness, and the custodyof surplus cash from financial institutions.

Continued on page 14



NOTE PRINTED

NOTES FORDESTRUCTION

ISSUED INTO

CIRCULATION

DISPENSED TO

CONSUMER

RETAIL SPEND

BANKING

QUALITYCHECKING

STORED FORRE-ISSUE

Cash cycle




Cash cycle modelsIn the controlled model, as the namesuggests, the central bank still controls and

monitors the cash in circulation by carryingout most of the processing itself. Essentiallyit is status quo. The commercial bankstransfer excess cash daily so that the centralbank can sort, withdraw and destroy unfit andcounterfeit notes before re-distributing newlypackaged bundles to the commercial banks.

In the involved model, the commercialsector can re-issue cash without it beingauthenticated or fitness sorted by thecentral bank. This applies in some eurozonecountries, for example, where wholesale cashhandlers must process notes to strict criteriafrom the European Central Bank and theindividual countrys central bank.

In the delegated model more responsibilitystill is transferred to the private sector. Here,as well as processing cash, some commercialbanks may deposit excess amounts intheir own vaults as central bank cash. Thissystem is known as Notes Held To Order(NHTO). But this cash must be processed forauthentication and fitness to an approved levelbefore being stored. Crucially, to keep closetrack of its liquidity, the central bank is adviseddaily of the value deposited at each location.

The UK and Australia have adopted thedelegated model. Neither the Bank of Englandnor the Reserve Bank of Australia carries outany general fitness sorting and both accept

only unfit deposits. De Nederlandsche Bank(the Dutch National Bank) and the US FederalReserve, however, insist that a proportion ofall notes be returned for processing to monitorfitness of each denomination and to keepabreast of counterfeits.

There is an extension of the delegatedmodel which is the privatised model. As yetthere are only a tiny number of banks thathave adopted this fully privatised option andit will be interesting to see if it becomes morewidely adopted in the future.

Commercial sector challengesThe private sector comes with a different

perspective, needing to stay competitivein a growing market that is seizing theopportunities that the new cash cyclesare presenting.

Dieter Halfar is a Principal at businesstransformation consultancy Elix-IRR. Hepreviously worked for Absa Bank, a SouthAfrican subsidiary of Barclays, where hedesigned an internationally recognised cashmanagement improvement programme.

Dieter told Exchangethat the South AfricanReserve Banks recent move towards a moredelegated cash cycle is providing a challengefor the commercial sector in a country withits own particular set of difficulties.

Crime is an issue, unemployment too, alladding to the risk of processing cash in South

Africa. We also have geographical challenges.Its a large country so movement of cash isexpensive. The cost of transporting by road

keeps rising with fuel prices. Our rail networkis not effective enough for the transportationof general goods and services, with the resultbeing a massive increase in road usage,driving up the cost of maintenance, the needfor expansion, tolls and levies. 70% of the costof ATM replenishment is down to CITs and thecost of transportation.

In the operating area of a bank, it is notuncommon to see 25% of staff employedin cash, says Dieter Halfar. Its very labourintensive. I would say that, apart from IT,cash is the most costly operation becauseof transport, regulation and labour. Due tothe rising cost pressures in the cash industry,

banks have had to look at changing theiroperating models. For example, why do banksinsist on replenishing ATMs themselves?Consolidating and outsourcing ATM servicesto CIT should be evaluated.

These are some of the drivers forcing theindustry to focus on efficiencies and usingmanagement information to drive processand continuous improvement.

Making cash more efficientCash processing usually involves somedegree of automation. This helps to keeplabour costs down and minimise shrinkage:misappropriation of cash by processing

staff. But wholesale cash handlers will alsobe considering how to achieve the fastestpayback in a crowded market.

So how can cash be made morecompetitive? Dieter Halfar shares his views onthe South African example. In my opinion theonly way in South Africa is to maximise thecommercial cash and recycle it back into yourATM network, and also create chargeablevalued-added services. For example providingother services such as managementinformation and the ability to track and trace,to communicate with the bank seamlesslywithout having to pick up a phone. These areall services which historically wouldnt have

existed but are now essential to compete.Another stakeholder in the cash cycle

interested in minimising cost and providingthe best customer service to the public is theretailer. To reduce the volume of cash held,with its associated insurance costs, retailersare increasingly opting for local recycling ofdaily cash takings. One way of doing this is tooffer cashback to customers. Clearly retailersare one of the major stakeholders in the cashcycle and central banks are increasinglyengaging with them to find solutions that workfor all parties. In some cases for examplethe Bank of England legislation is beingconsidered to validate some of the processes

used by retailers, as always with the goal ofensuring the integrity of the currency.

New developmentsIn the eurozone, the Banknote RecyclingFramework (BRF) provides criteria for

cash handling, processing and dispensingequipment that are also being adopted asstandard by some central banks elsewhere.It is hoped this will contribute to a widespreadclean note policy that addresses thecondition of cash in circulation. Meanwhilefinancial institutions and other cash handlersin the UK have exceeded a Bank of Englandtarget to increase the availability of goodquality 5 notes at ATMs over the last two years.

Local recycling is another developmentwhich aims to improve operational efficiency,particularly in competitive markets like theUK. It is a growing trend worldwide, theinstallation of recycling ATMs is expected

to grow by 26% over the next eight years.

The role of technologyTheres no doubt that technology is playinga crucial role. By way of an example, theEastern Caribbean Central Bank (ECCB)has currency operations across eight islandsand was challenged to improve the efficiencyand timeliness with respect to the issueand redemption of banknotes. But recentinvestment in an extension of their vaultmanagement solution (ECM from De La Rue)combined with banknote life cycle trackinghas improved visibility and real-timemanagement of its currency. The solution

uses banknote serial numbers, from issue todestruction, to track and monitor the usageand movement of notes, providing informationabout where and what supplies are requiredacross the eight islands.

In summaryIncreasing demands on the cash cyclehave encouraged the development of variousmodels to try and manage it efficiently andeffectively and to balance the potentiallyconflicting demands of control by the centralbank with managing the overall cost to societyof providing cash. The different modelsrequire different policy innovations to achieve

this balance, but modern cash handlingtechnology and associated software solutionscan provide exciting new tools to increaseefficiency whilst maintaining control.

worldwide, the installation of recycling ATMs isexpected to grow by 26% over the next eight years.



It is often difficult for people in the Westto appreciate the scale of the problemsexperienced by the developing world.

Rwandas GDP in 2011 was $6.8 billion.Compare that with Apples sales in the sameyear of $108 billion.

Among the least educated sections of

the Rwandan workforce, unemployment isrunning at more than 60%. With two-thirdsof the population aged under 25, Rwandaneeded to generate 500,000 additional jobsfor young people between 2007 and 2012.For the 5,000 students that graduate annuallyfrom the countrys universities, the job marketis particularly tough with a narrow privatesector unable to absorb the volume of youngRwandan talent.

Although new business creation is activelyencouraged by government and could be afertile avenue for new jobs, resource limitationsrestrict the level of entrepreneurship trainingwithin university curricula and exposure toopportunities in business this is an issue thatthe UK-based charity AIP (African InnovationPrize) is trying to address.

AIP was set up by a group of CambridgeUniversity students with business anddevelopment backgrounds, in response toa public policy lecture delivered by RwandasPresident Paul Kagame at Cambridge in 2008.De La Rue is one of AIPs lead sponsors.

Alex Handy, one of the co-founders of AIP,says: We wanted to use our own experiencesas students, to help address the gap betweeneducation and employment that exists foryoung people in many African countries,by providing them with the skills and start-upcapital they need.

FedEx, Facebook, Google and Microsoftare all multi-billion dollar businesses thatwere conceived and launched by studentswhile they were still at university, andsuccessfully managed university-based

entrepreneurship can act as a powerful driverto greater prosperity.

In countries like Rwanda, he says,graduates must endeavour to become jobcreators as well as job seekers.

Africa is the next frontier market, saysAlex, and despite the handicaps it faces

Rwanda is really fertile ground for developingentrepreneurs. It is one of the least corruptand most business-friendly countries inAfrica. Entrepreneurs have the support ofgovernment policy, there is minimal red tape,decent internet penetration and a gooduniversity infrastructure with students whoare really geared into helping to rebuild theirnation. Over the past three years, Ive beenfortunate to meet lots of highly ambitiousand intelligent young Rwandans.

AIP runs what it describes as anintegrated 3 pillar programme to stimulatea culture of university entrepreneurship inAfrican universities. A university businessplan competition that inspires and fundsnew business ideas and business plans iscomplemented by entrepreneurship trainingand mentoring from local business people.

One of the 2012 winners was JessieGakwandi who has a degree in computerengineering from the Kigali Institute ofScience and Technology.

Her idea to provide a printing servicefor university staff and students was bornof her own frustration at having to take abus to the print shop. Turning a problem intoan opportunity, she is creating a conciergeservice to handle printing requirements, anddeveloping the software for a money transfersystem which enables users to pay for theservice by mobile phone.

She had previously attended AIPentrepreneurship training courses, whichopened her eyes to entrepreneurshipwork, and led her to identify herself as

an entrepreneur. She is planning to developher current business idea further, and hasother ideas with potential application bothwithin Rwanda and beyond.

Jessie is one of the new generation ofwomen that will take the country forward.Rwanda is planning to raise its per capita

income from US$220 in 2000 to US$1,240by 2020. To achieve this, the country will needto liberate its women from the rural grindas President Kagame describes it. Womencurrently produce up to 80% of the countrysfood and provide 90% of water and fuelwood, he says.

AIP, meanwhile, is expanding itsprogramme into the West African state ofSierra Leone, and hopes to be working in10 universities across three countries by 2015,reaching 50,000 high-potential entrepreneurs.

Entrepreneurson the new frontier

An innovative programme is helping Rwandanentrepreneurs to get their ideas off the ground.

SUSTAINABILITY

AFRICAN PARTNERSHIP

MAKING A CONTRIBUTIONThe African Innovation Prize (AIP) is one ofthree African charities that De La Rue is currentlysupporting through its Advanced PartnerProgramme.

In addition to this corporate sponsorship,De La Rue has worked with the organisationRwanda Aid to build a school for around 900pupils, and earlier this year announced itsinvolvement in a new project with the charityStreet Child of Sierra Leone.

Street Child does what it says on the tin working to get children off the streets and intofull-time education. The De La Rue AdvancedPartner Programme is now helping to rebuild aschool in the remote northern part of the country.

The AIP involvement in Sierra Leone is alsobenefitting from De La Rue support.



RWANDA IS REALLY FERTILE GROUNDFOR DEVELOPING ENTREPRENEURS.

IT IS ONE OF THE LEAST CORRUPT ANDMOST BUSINESS-FRIENDLY COUNTRIESIN AFRICA. ENTREPRENEURS HAVE THE

SUPPORT OF GOVERNMENT POLICY, THEREIS MINIMAL RED TAPE, DECENT INTERNET

PENETRATION AND A GOOD UNIVERSITYINFRASTRUCTURE WITH STUDENTS WHO

ARE REALLY GEARED INTO HELPING TO

REBUILD THEIR NATION. OVER THE PASTTHREE YEARS, IVE BEEN FORTUNATE TOMEET LOTS OF HIGHLY AMBITIOUS AND

INTELLIGENT YOUNG RWANDANS.

ALEX HANDY, CO-FOUNDER OF AIP

ENTREPRENEURIAL RWANDAN STUDENTSLEARN KEY START-UP SKILLS IN AFRICANINNOVATION PRIZE TRAINING SESSIONS.

JESSIE GAKWANDI THE AFRICAN

INNOVATION PRIZE PHASE II WINNERAT THE KIGALI INSTITUTE OF SCIENCE

AND TECHNOLOGY



Enforcing the lawon a global scale

GLOBAL SECURITY

COMBATTING COUNTERFEITERSAND ILLICIT GOODS



No one really knows the true scale of counterfeitcurrency in circulation across the world but itssafe to assume it remains a perennially attractiveproposition for criminals. The global counterfeitgoods industry as a whole is estimated to cost$600 billion a year. And identity fraud is becoming

a significant security concern for governmentsacross the world. Stemming the tide of illicit goodsand currency circulating within countries, as wellas across borders, and preventing people travellingon false passports are an almost impossible task forlaw enforcement agencies. Exchangelooks at someof the challenges they face

Continued on page 20



The movement of illicit goods is a constantchallenge but, from a national securityperspective, identity fraud is a greaterconcern. Put simply, a genuine passportobtained through identity fraud allows aterrorist to travel round the world undetected.Criminals always focus on the weakest link for

travel documents, whether that be documentsecurity, issuing procedures or false identities.This threat to travel documents variesbetween countries and regions.

A range of global organisations, includingthe International Civil Aviation Organization(ICAO), the Organization for Security andCo-Operation in Europe and the InternationalOrganization for Migration, are movingtowards better practices in national identityand issuing guidelines for passport authoritiesand national identity management.

One example is a current three-year ICAOproject in the Americas, run in conjunctionwith the Organization of American States,which assesses countries current processesfor ID documents and passport managementand border control procedures at airports.The project team issues detailed reports onthe countries they visit, which have recentlyincluded Mexico, Panama, El Salvador,Guatemala and the Dominican Republic, aswell as making any recommendations thatwould bring their national processes into linewith best international practice. This processof improving identity management and bordercontrol requires sustained commitment andco-operation from governments across theworld and it isnt going to happen overnight.

In the meantime, global law enforcementagencies face some challenging times in tryingto keep one step ahead of the counterfeitersand illicit goods criminals.


The counterfeiting of money is one of theoldest crimes in history. Governments and centralbanks have always taken very seriously theirrole in maintaining the confidence and integrityof their currency.

In the UK, there is a long and ignoblehistory of forging banknotes. As in the US,the number of counterfeit notes in circulationis relatively low (according to the Bank ofEngland its a fraction of 1%). The drivefor the UKs National Central Office for theSuppression of Counterfeit Currency (NCO)

is to get every fake banknote out of circulationfirst and then work to shut down the criminalgangs. The NCO, part of the SeriousOrganised Crime Agency, analyses thousandsof reports from police forces and the Bankof England to identify current trends andfuture threats.

Banknotes are just one of the myriad illicitgoods being transported across the worldsborders. Customs officials clearly have theirhands full. The World Customs Organization(WCO) is leading the fight against thesemultiple challenges through a co-ordinatedstrategy based on consistently high standardsof border management, a knowledge-basedapproach and shared intelligence. Effectiveborder management enables governmentsto monitor the flow of goods in and out of theircountries and boost government revenuesthrough the collection of tax duty on cigarettesand alcohol. One recent example wasOperation Meerkat, a joint operation betweenthe WCO and Interpol in Africa, which saw40 raids carried out at ports, border points,shops and markets in seven different countriesin East and Southern Africa. The Operationsoffice in Nairobi managed the exchange ofinformation between border officials in thedifferent countries and co-ordinated the raids.More than 32 million cigarettes and 3,000litres of alcohol were seized and criminalproceedings into tax evasion and othercriminal offences are under way.

The globalisation of world trade and growthof the internet mean that we can buy productsfrom all over the world, anytime, anywhere.But this incredible movement of goods andservices across the worlds borders hascome at a cost. Criminal gangs, often withlinks to organised crime, are running highly

sophisticated operations that can manufactureand transport anything and everything fromfake banknotes, passports and luxury goodsto cigarettes, alcohol and drugs as well astrafficking people.

The counterfeiting of money is one of theoldest crimes in history. Governments andcentral banks have always taken very seriouslytheir role in maintaining the confidence andintegrity of their currency. So much so that attimes copying and printing fake currency hasbeen a treasonous act punishable by death.

The United States Secret Service was setup in 1865 specifically to prevent counterfeiting.Over the years its role has expanded massively,of course, but one of its primary functionsremains the prevention of the productionand circulation of counterfeit dollars.

Its generally recognised that the USSecret Service has been very successful inthis area. The US Government estimates thatonly 0.01% of the US currency in circulationis counterfeit. But if you consider that thereis an estimated $1.09 trillion in circulation(and only a third of it within the US), thatsstill an awful lot of fake greenbacks, as theyare known. A raid in July 2012 on a mass-production, hi-tech counterfeiting operationin South America, which is fast becomingthe centre of a number of significantcounterfeiting operations, captured $2 millionand 1.5 million, showing that this problemis not going to go away.



DE LA RUE AND GLOBALLAW ENFORCEMENTThe very essence of De La Rues products banknotes, identity systems and securityproducts puts it in the front line of protectingthe customers products and integrity. Thecompany works closely with global lawenforcement agencies to assist in the battle

against counterfeiters.In one CIS country De La Rues position as

a trusted partner and long-time supplier of thecountrys banknotes and tax stamp schemeled it to become involved in examining fake taxstamps on a huge cache of vodka. In the US,the company hosts visits to its Virginia facilityto all new starters in the Secret ServiceForensics Division so they can understand moreabout security printing technology. In the UKDe La Rue is frequently asked to examinesuspect banknotes from the UK and around theworld. Its currency expertise also means thatit is asked to run banknote verification coursesfor bank officials, police and border guards fromaround the globe.

De La Rue worked closely with the National

Document Fraud Unit (NDFU) on the design ofthe new UK passport and has subsequently runcourses for them on papers, inks and passportproduction. The company is a member of theWorld Customs Organizations Private SectorConsultative Group, which advises the WCOon key issues relating to the private sector.Membership also gives De La Rue a valuableinsight into the development of global customspolicy and strategies.

This continuous two-way exchange ofinformation with global law enforcementagencies helps agents and officers do their jobsbetter in the field and enables De La Rue to keepup to date with the latest counterfeiting trends,to be able to recommend relevant cutting-edgesecurity solutions to customers and to developinnovative and appropriate new products.

Banknotes are just one of the myriad illicit goodsbeing transported across the worlds borders.Customs officials clearly have their hands full.

The World Customs Organization (WCO) isleading the fight against these multiple challengesthrough a co-ordinated strategy based onconsistently high standards of border management,a knowledge-based approach and shared intelligence.



DE LA RUE

AT WORK AROUND THE GLOBE

World view

300 YEARS OF PAPERMAKINGA 300th anniversary is a remarkable achievementfor any organisation. No wonder that this year,the 300th anniversary of banknote papermakingin the county of Hampshire, England, De La Ruehas been celebrating this special milestone byundertaking a wide range of activities forcustomers, employees and the local community.

Henri Portal began making paper in 1712 atBere Mill in the village of Whitchurch, Hampshire,on the River Test and began supplying theBank of England with banknote paper in 1724.The company moved to a neighbouring village,Laverstoke, in 1716, before moving to its currentlocation in Overton in the 1920s. The Portalscompany was acquired by De La Rue in 1995.

Throughout its 300-year history, the companyhas been famous for the quality of its watermarks.It has also been at the forefront of majorinnovations such as incorporating security threadsinto banknote paper, producing windowed threadsand launching the first durable paper banknoteproduct. This distinguished tradition of innovationhas been recognised in the UK by a number ofQueens Awards for Enterprise, most recentlyThe Queens Award for Innovation in 2006 forStarChrome colour shifting thread.A commemorative logo was produced which

depicts both the hand making of watermarks andthe large banknote papermaking machines in usetoday. In addition, a commemorative watermarkwas designed showing the three mills wherepapermaking has taken place over the years.

In autumn 2012 De La Rue ran a customerseminar covering a wide range of banknote-related topics such as design, counterfeitingand innovation. Delegates were also givena tour of the Overton Mill.

COMMEMORATIVE WATERMARKSHOWING BERE MILL, LAVERSTOKE MILL

AND OVERTON MILL.


25/2823EXCHANGEAUTUMN 2012DE LA RUEContinued on page 24

BERE MILL TODAY

A tercentenary garden has been planted at theOverton Mill site and a range of historical picturesof papermaking displayed. De La Rue employeeshave raised funds for a local childrens hospiceand enjoyed a family day out at the Overton MiniOlympics event.

For the local community, the company continuedto support the local village Sheep Fair both

financially and with a stand where members of thepublic were invited to test their skills at makinghandmade watermarks.

The company also ran a design a banknotecompetition for local schools in the area. Thechildren could choose to design their banknotearound any topic significant to the year 2012 such as the Olympic Games and Diamond Jubilee as well as the anniversary of the 300 years ofpapermaking in Hampshire. The competitionattracted a large number of entries and the threewinners were given a tour of De La Rues designdepartment, as well as a professionally producedversion of their banknotes to keep.And to follow 300 years of papermaking this

year, next year marks 200 years since Thomasde la Rue from Guernsey founded his printingcompany. More reasons for De La Rue tocelebrate in 2013.

Throughout its 300 year history, the companyhas been famous for the quality of its watermarks.It has also been at the forefront of major innovationssuch as incorporating security threads into banknotepaper, producing windowed threads and launching

the first durable paper banknote product.

DESIGN BY KATIE WILLIAMS

DESIGN BY KATIE ASH




GIBRALTARThe Government of Gibraltar, in partnershipwith De La Rue, introduced a modern andcolourful new family of banknotes during 2010and 2011. The banknotes were designed toreflect Gibraltars rich history and culture datingfrom the Moorish era right up to the presentday. In addition to the existing 5, 10, 20 and50 banknotes of the previous series, a 100denomination was issued for the first time.The entire series shares a common portrait of

Her Majesty Queen Elizabeth II on the front whilstthe reverse of each banknote carries a vignettedepicting an aspect of Gibraltarian history.The vignettes are complemented by pattern workrepresenting Gibraltars strategic location betweenthe Mediterranean Sea and the Atlantic Ocean.The notes carry tactile features for the blind andvisually impaired, security features that becomevisible in the light and reinforced corners forenhanced durability.

UN LAISSEZ-PASSERProduction of the new United Nations electronicLaissez-Passer (e-UNLP) has recently gone live.The document, which is fully ICAO 9303 compliant,includes a contactless microprocessor chip

and facial recognition biometrics and features acombination of overt and covert layered securityfeatures. One of the objectives of the e-UNLP is toallow UN representatives to travel to member stateswithout the need for a national passport. There arefour versions of the book, with either a red or a bluecover according to the position held within the UN,and identifies the officials serving either under theConvention on the Privileges and Immunities of theUnited Nations or the Convention on Privileges andImmunities of the Specialized Agencies. De La Rue,which has a long standing relationship with theUnited Nations and has been supplying theorganisation with Laissez-Passer books since1996, will be supplying approximately 20,000booklets per year, to be issued to officialsof the UN and its Specialised Agencies.


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TO FIND OUT MORE ABOUT ANYSUBJECT COVERED IN THE MAGAZINEOR OBTAIN FURTHER COPIES, PLEASE [email protected]

THE OPINIONS EXPRESSED IN EXCHANGEMAGAZINE ARE NOT NECESSARILY THOSEOF DE LA RUE.

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ECM AND OPTIKS ARE TRADEMARKSOF DE LA RUE INTERNATIONAL LIMITED

VARIFEYE IS A REGISTERED TRADEMARKOF GIESECKE & DEVRIENT GMBH

THIS PUBLICATION IS PRINTED ON PAPERTHAT HAS BEEN INDEPENDENTLY CERTIFIEDAS MEETING THE STANDARDS OF THE FORESTSTEWARDSHIP COUNCIL (FSC), AND WASMANUFACTURED AT A MILL THAT IS CERTIFIEDTO THE ISO14001 AND EMAS ENVIRONMENTALSTANDARDS.

THE DOCUMENT WAS PRINTED BY ACOMPANY WHICH IS ISO14001 CERTIFIED,CARBONNEUTRAL, ALCOHOL FREE PRINTER,FSC AND PEFC CHAIN OF CUSTODY CERTIFIED.THE INKS USED ARE ALL VEGETABLE OIL BASED.


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DE LA RUE PLCDE LA RUE HOUSEJAYS CLOSEVIABLESBASINGSTOKEHAMPSHIRE RG22 4BSUNITED KINGDOM

T +44(0) 1256 605 000F +44(0) 1256 605 339

www.delarue.com

De La Rue International Limited 2012

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