New US dollar bills will not be polymer – Fed official

It is unlikely any of the new US dollar banknote denominations will be printed on polymer, according to an associate director of the US Federal Reserve Board.

Speaking at the ATM & Cash Innovation Europe conference today (June 14), Michael Lambert said every country should analyse their own counterfeit risk when evaluating whether a move to polymer banknotes would be beneficial.

“We don’t have any immediate plans to change our substrate,” Lambert told Central Banking following his presentation on the future of cash. “We keep an eye on developments across the sector, and are actively engaged with many substrate providers, but at the moment, we are sticking to our paper composition.”

The US dollar is currently printed on a combination substrate made from 25% linen and 75% cotton. The unique composition, Lambert said during his talk, means the note is extremely durable.

“Some countries have adopted polymer for durability. Our $1 note has an average lifespan of six years, which already provides long life,” he said.

The composition of the dollar note has also been key for counterfeit identification, Lambert said. “The feel of the US currency is very important,” he said, stressing that experienced cash handlers can often detect suspect counterfeits with touch. “That feel is very important to users around the world.”

Change of plan

In 2016, the US Treasury, then under the Obama administration, announced it would be launching three revamped designs for the $5, $10 and $20 dollar notes. Despite being in the early stages, the Treasury had begun work on initial concepts for each note, the designs of which would pay homage to a large number of historic female figures.

Jacob Lew, Treasury secretary at the time, expected final designs for the new notes would be unveiled in 2020 in conjunction with the hundredth anniversary of the Nineteenth Amendment, which granted women the right to vote.

It is unclear if the new US administration under president Donald Trump plans to stick with the original timetable or the historical figures that were due to appear on the new banknotes. Lambert declined to speak specifically on the timetable, but said the Fed would now be releasing a whole family of banknotes – not just the three previously announced.

“Treasury secretary [Steven] Mnuchin has mentioned it’s security first, so what is going to drive the change is having the right security for the different denominations, and having it for the family of notes,” Lambert said. “The new Treasury secretary has reiterated the US Currency Education Program’s objective.”

Lambert explained the new family of banknotes would be designed using a lot more intaglio printing: “We do double-sided intaglio printing, so when you combine that with our unique paper substrate, we believe it creates a highly durable substrate and a unique feel, which helps cash handlers identify suspect counterfeits.”

The Fed director also stressed the central bank was making sure the US authorities would not be “overwhelming” the public with new security features: “They expect us to do it right, they expect us to protect them, so we don’t want to overwhelm them with a bunch of new features.”

Cash is not dead

In recent years, there has been a growing debate about the future of cash, given the rise of electronic payments and the impact cash has on holding monetary policy at the zero lower bound.

“I am not here to suggest cash will never be replaced… but it will exist for some time to come,” Lambert told an audience of payment industry specialists.

For the US, cash remains the most frequently used payment infrastructure, accounting for 32% of all payments in 2015. Cash is primarily used by those with lower incomes (those with annual take-home salaries of $50,000 or less).

“Reports of the death of cash seem largely exaggerated,” Lambert said, adding that the use of cash had grown on average around 6% since 2011. Data from the US central bank shows there are more than 40 billion pieces of currency in circulation, which equates to a face value of $1.5 trillion. Between one-half and two-thirds circulates outside the US border, largely in $100 dollar bills – the favoured US note for fraudsters.

Lambert said the demand for cash would have to fall by 40% before the Fed made any changes in terms of its processing equipment: “The equipment is expensive, and we are currently in the beginning process of replacing machines which are now 25 years old.”

Unlike a number of currencies, the dollar is unique in the way it is used as the national currency by a number of nations across the globe. For that reason, the Fed would still have to provide dollars for those nations, Lambert explains.

“I don’t see cash falling off even domestically any time soon, but if it did and international demand continued, we would meet that demand,” he said.