The Bangko Sentral ng Pilipinas (BSP) will circulate 1,000-piso “greener” and cheaper polymer banknotes in the first half of 2022, partly in response to a need for a more hygienic plastic bills that are also recyclable and longer lasting than paper money.
BSP Deputy Governor Mamerto E. Tangonan said on Monday, Oct. 25, that as a test run and to discern the domestic demand for polymer money from banks and the public, only a “few” hundred million pieces will be released by the BSP next year and these are outsourced polymer banknotes. Paper banknotes will still dominate the money in circulation.
Tangonan said it will be a limited circulation test of 1,000-piso banknote for the purpose of the following: acquiring “significant” feedback; to determine the effect of polymer banknotes on currency handling; and to attest the durability and lifespan of plastic money.
Tangonan said shifting from paper to polymer will have a minimal impact on the local abaca industry. Philippine banknotes are printed on paper with abaca fiber or pulp.
“Job losses and foregone revenues are not significant,” said Tangonan. The BSP estimates that the limited polymer banknote circulation will only affect about 0.2 percent to 0.4 percent of the 2020 abaca farming jobs, or about 210 to 481 people. In terms of revenues, its effect will be 0.1 percent to 0.2 percent of its total exports.
Tangonan said displacement costs will be offset by other opportunities such as more demand for “green” economy products and manufacturing of PPEs. “There will be a phased transition, allowing industry players to adjust over time,” he said.
There was opposition from some sectors to the polymer shift due to the adverse impact on the local abaca producers. The BSP however said that it has given its “commitment to maintain an open dialogue with key players of the abaca industry and relevant agencies (such as the Department of Agriculture) as we carry out the limited test circulation of 1000-piso notes.” The BSP has been using abaca in the printing of banknotes since 2001.
The COVID-19 pandemic and concerns for sanitizing frequently touched objects including banknotes and coins is a key reason why the BSP has decided to source polymer money.
Polymer banknotes have low bacterial count compared to paper or cotton-based banknotes, said Tangonan. Some central banks such as the Bank of England and the Reserve Bank of Australia have found out that polymer banknotes are safer than paper as it will not host viruses or bacteria.
Another major reason is sustainability since polymer or plastic as material will last longer. Based on studies cited by the BSP, a polymer banknote has a cash cycle or a lifetime ratio of 4.8 times compared to paper which is usable only for eight to 18 months compared to about four years for polymer. The more durable and water-resistant plastic money will also have a smaller carbon footprint, lower water and energy usage, and less environmental toxicity.
Tangonan said polymer banknotes will have lower production costs and since it will last longer, it will eventually improve in terms of cost savings such as in the case of Australia where it saved some $1 billion over a period of 25 years.
“Although paper banknotes are cheaper in terms of cost of materials but because of the relatively shorter lifespan you need to have two of them to get the same life out of a polymer banknote,” he said. Based on the experience of Bank of New Zealand, for example, the average issue cost of paper banknote is 5.3 compared to 1.8 for polymer banknote while the average cost operation is 16.4 for paper banknote versus only 4.4 for polymer.
Another potential benefits of polymer banknotes is that it is harder to counterfeit because of its security features. The BSP have ongoing consultations with polymer banknote producers and other central banks before testing the first batch of polymer money.
“We are currently assessing the benefits and costs associated with a potential shift to polymer (such as) counterfeiting, extended lifespan before the need for replacement, and other relevant factors that affect the overall social costs and benefits of the banknote,” said the BSP in a document explaining polymer banknote.
The BSP said the limited test circulation will include machine- testing to recalibrate requirements, technical training for bank personnel, and consultations with machine suppliers and the banks.
It said banks “are generally receptive to the shift to polymer banknotes” based on a survey that the BSP conducted. It also assured that ATMs and ATM service providers are capable and can dispense polymer money.
“The BSP is cautiously optimistic about the public benefits of a possible shift to polymer and believes in the capability of the country’s banking system to address the technical issues associated with this potential shift, as other countries have done,” said the central bank.
Last year, amid the pandemic, the BSP outsourced 62.2 percent of its banknotes requirement and it only printed about 34.7 percent locally. This is in contrast to what is considered “normal times” when BSP will print most of the country’s banknotes requirements. In 2019 it produced 65.7 percent of banknotes and only outsourced 34.3 percent.
The BSP issued 3.685 billion pieces of banknotes in 2020.