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

  • Jorge Eduardo Galán Camacho

    ()

  • Miguel Sarmiento Paipilla

    ()

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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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 004393.

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Length: 50
Date of creation: 19 Dec 2007
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Handle: RePEc:col:000094:004393
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  1. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
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  4. Jorge Galán Camacho & Miguel Sarmiento Paipilla, . "Staff, Functions, and Staff Costs at Central Banks: An International Comparison with a Labor-demand Model," Borradores de Economia 419, Banco de la Republica de Colombia.
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  7. Jeffrey M. Lacker, 1993. "Should we subsidize the use of currency?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-73.
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  9. James Bohn & Diana Hancock & Paul Bauer, 2001. "Estimates of scale and cost efficiency for Federal Reserve currency operations," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-26.
  10. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  11. Loretta J. Mester, 2003. "Applying efficiency measurement techniques to central banks," Working Papers 03-13, Federal Reserve Bank of Philadelphia.
  12. Amemiya, Takeshi, 1978. "A Note on a Random Coefficients Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 793-96, October.
  13. Fare, Rolf & Shawna Grosskopf & Mary Norris & Zhongyang Zhang, 1994. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries," American Economic Review, American Economic Association, vol. 84(1), pages 66-83, March.
  14. José De Gregorio, 2003. "Mucho Dinero y Poca Inflación: Chile y la Evidencia Internacional," Economic Policy Papers Central Bank of Chile 08, Central Bank of Chile.
  15. Jerry Mushin, 1998. "Modeling the currency issue," Atlantic Economic Journal, International Atlantic Economic Society, vol. 26(3), pages 252-258, September.
  16. David C. Wheelock & Paul Wilson, 2004. "Trends in the efficiency of Federal Reserve check processing operations," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 7-20.
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