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

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  • Jorge E. Galán and
  • Miguel Sarmiento

    (Banco de la República (Colombia))

Abstract

This paper examines trends in banknote printing during the period 2000-2005 for a crosssectionof 56 central banks. Because of the high increase in the demand for currency inrecent years, central banks have implemented new strategies to increase efficiency in theproduction of banknotes. Some of them, involve the private sector by means of differentmodalities (e.g. joint ventures, subsidiaries or purchase of banknotes from specializedcompanies), and the integration of banknote printing and cash processing in a singlecomplex (e.g. Portugal and Colombia). A cost function using a panel data model withrandom effects was estimated. It was identified that the denomination structure, the size ofbanknotes, and the production method used by central banks have a significant impact onproduction costs. Government printing was found to be the most costly method, whileprivate-sector involvement in the process substantially reduces production costs. Using anon-parametric efficient frontier model, it was found that most central banks have increasedits technical efficiency during the period, especially in central banks where the privatesectorhas involved. Computing a Malmquist index through distance functions it wasidentified that central banks have showed a moderate increase in its productivity, primarilydue to increases in efficiency and, in a lower proportion to technical change. In most of thecases, a positive change in efficiency is mainly the result of higher scale efficiency. Thiscould obey to high increase in demand for currency.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jorge E. Galán and & Miguel Sarmiento, 2008. "Banknote Printing at Modern central Banking: Trends, Costs and Efficiency," Money Affairs, CEMLA, vol. 0(2), pages 217-262, July-Dece.
    • Handle: RePEc:cml:moneya:v:xxi:y:2008:i:2:p:217-262
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    References listed on IDEAS

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    Cited by:

    1. Van Hove, Leo, 2015. "Modelling banknote printing costs: of cohorts, generations, and note-years," Economic Modelling, Elsevier, vol. 46(C), pages 238-249.
    2. Miguel SARMIENTOO & Andrés CEPEDA & Hernando MUTIS & Juan F. PÉREZ, 2013. "Nueva Evidencia sobre la Eficiencia de la Banca," Archivos de Economía 10705, Departamento Nacional de Planeación.
    3. Freddy H. Castro & Ingrid Monroy, 2011. "Demanda laboral en la Banca Central: análisis de tendencias 2000-2009," Borradores de Economia 662, Banco de la Republica de Colombia.
    4. Javier E. Pirateque & José H. Piñeros & Linda Mondragón, 2013. "Eficiencia de los establecimientos bancarios (EB): una aproximación mediante modelos DEA," Borradores de Economia 798, Banco de la Republica de Colombia.
    5. Bouhdaoui, Y. & Bounie, D. & Van Hove, L., 2013. "When do plastic bills lower the bill for the central bank? A model and estimates for the U.S," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 45-60.

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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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