Banknote Printing At Modern Central Banking:Trends, Costs, And Efficiency
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.
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