Peso printing anomaly in BSP

(Reposted from Lamang Lupa)

Thursday, July 29, 2010 at 3:11pm

A few days ago, a company called De La Rue found itself in deep doo-doo as its stock prices plunged 19% (as of my last count) because it had to shut down its production due to faulty paper supply... (see http://www.bbc.co.uk/news/uk-england-hampshire-10712831) this company is a security printing company that manufactures currency for a number of companies, including the Philippines. Now normally any country outsources up to 10% of its currency printing, just to play safe in case their own printing facilities have problems.

But wait, it turns out that nearly half of Philippine currency is outsourced!

WTF? That means when De La Rue is in trouble, so are we. Just check out the most recent businessmirror story:

http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=28144%3Absp-no-worries-on-de-la-rue&catid=23%3Atopnews&Itemid=58

But there's a darker side to this. The Security Printing Complex (SPC, in Quezon City) of the Bangko Sentral ng Pilipinas (BSP) today has insufficient equipment to print banknotes. Some of the machines are over 30 years old and no longer suitable for efficient production. The installed equipment cannot be used for the printing of banknotes with sophisticated new security features, such as are common today.

Due to its limited and outdated machinery, the SPC is unable to produce the volumes of banknotes currently required for the country. Since 1998 the BSP has been importing more and more finished banknotes from private printing companies in Europe. The leading private security printing companies are De la Rue (UK), Giesecke & Devrient (Germany), Oberthur (France), Enschedé (Netherlands) and Orell Füssli (Switzerland).

BSP’s yearly importation of finished notes have increased from approximately 100 million notes in 1998 to approximately 900 million banknotes in 2009 (more than 40% of the country’s annual requirement).

BSP deputy governor Armando Suratos, who supervises the operations of the SPP, has claimed that the report that BSP outsources some “47%” of its banknote printing requirement is “exaggerated” and “very high.” He further claimed that outsourcing is “more the exception rather than the rule” at the central bank.

He is directly contradicted by several former directors of the SPP and former officials of the BSP. They say that Suratso is lying. Outsourcing of printing has been growing in volume in recent years. The percentage now is from 47-50%.

Also, De La Rue’s troubles with quality printing standards are cause for worry for the Philippines. It handles a major part of the outsourcing orders of the BSP. And it designed the new generation currency of the country.

Apart from the Philippines, Nigeria is the only country in the world with a large population that has been outsourcing the printing of a significant portion of its currency requirements to foreign printers. However, given the high cost of outsourcing, Nigeria recently purchased several lines of state-of-the-art machinery to print more of its banknotes locally.

It is estimated that at present the BSP is spending annually $35 to $40 million for the importation of banknotes of the current series.

With the plan of the BSP to issue a full series of new peso banknotes (New Generation Currency) at the end of the year, the volume of outsourcing and importation will cover 100% of all requirements. This is because the SPC has no capability to print the new notes with their new security features.

The costs to the country are estimated to go as high as $70 million per year. The amount is almost the same as the cost of acquiring the technology and equipment for printing the new currency at the nation’s security printing plant.