US $100 Banknote Creasing:History and Resolution

Federal Reserve Efficiency Efforts, Uncertainty, andIssuing the New-Design $100 Federal Reserve Note

Michael LambertAssociate Director

The Board of Governors of the Federal Reserve System

Agenda

2

•The Federal Reserve’s role in the cash cycle•Efforts to improve efficiency •Demand conditions and planning for uncertainty•Preparing to issue the new-design $100•New $100 Note Issued

The Federal Reserve’s Role in the Cash Cycle

3

•Board as Issuing Authority; Reserve Banks distribution and processing roles

•Ensure notes are authentic and “fit for commerce”•Encourages recirculation of fit notes by commercial banks

•Provides a machine calibration testing program and publishes fitness guidelines

4

Growth Remains Strong

Dec-99

Dec-05

Dec-11

Dec-17

Dec-23

Dec-29

Dec-35

Dec-41

Dec-47

Dec-53

Dec-59

Dec-65

Dec-71

Dec-77

Dec-83

Dec-89

Dec-95

Dec-01

Dec-07

0

5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

30,000,000,000

35,000,000,000

Billions of Notes in Circulation by Denomination

$50s-$100s

$10s-$20s

$1s-$5s

5

Processing Needs to be Flexible

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000Federal Reserve Cash Processing VolumesBillions of Notes

Receipts+0.7% YTD 2013

Recirculation Policy Implemented

6

Effects of Recirculation Policy•Decreased number of times $10 and $20 notes return to the Reserve Banks

Inventory Turn RateTimes processed per year

1s 2s 5s 10s 20s 50s 100s Total2000 1.3 0.0 1.3 1.6 2.8 1.1 0.4 1.52001 1.6 0.0 1.3 1.5 2.8 1.0 0.4 1.52002 1.5 0.0 1.3 1.5 2.9 1.0 0.4 1.52003 1.5 0.0 1.3 1.4 2.8 1.0 0.4 1.52004 1.5 0.0 1.3 1.5 2.9 1.1 0.4 1.52005 1.5 0.0 1.3 1.4 2.7 1.0 0.4 1.42006 1.5 0.0 1.3 1.4 2.6 1.0 0.4 1.42007 1.4 0.0 1.3 1.2 2.3 1.0 0.4 1.32008 1.4 0.0 1.3 1.1 2.0 1.0 0.4 1.22009 1.3 0.0 1.2 1.1 1.8 0.8 0.3 1.12010 1.3 0.0 1.2 1.0 1.8 0.8 0.3 1.12011 1.2 0.0 1.2 1.0 1.7 0.8 0.3 1.02012 1.1 0.0 1.2 0.9 1.6 0.8 0.3 1.0

7

Upgraded High Speed Processing Machines and Sensors

•Upgraded machines increased efficiency almost 50 percent–BPH from low 70s to high 90s (from less than 20 notes per second to about 30 notes per second).

–Staff (as measured by ANP) decreased from 1500 to 1350

•Increased fitness sorting and authentication capabilities reduced shred rates and increased note life.

–Shred rates for $1 notes decreased from 50 to 15 percent–Note life increased from 1.4 to 5.9 years

8

Recirculation and Upgrade Efficiencies

9

Sensor Upgrades and Policy Change Effects on $1 Notes

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

0

1

2

3

4

5

6

7

0

10

20

30

40

50

60

Note life $1 destruction rate

Not

e lif

e (y

ears

)D

estruction rate (percent)

New opticalsorting sensor

Conditioning of misfaced notes

Misfaced notes policy

10

The Path Forward

$100 Note Demand is Strong

11

•We needed to plan for strong demand when preparing to issue the new-design note

–About 9 billion $100 notes in circulation–Planned to replace half in first year after issue

•Needed to build inventories of new-design while maintaining inventories of old-design

–Significant strain on vault capacity–Careful management of shred policy of old-design notes

12

$100 Notes in Circulation(billions of notes)

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

2,614,129,654.0

7,045,969,498.0

8,892,073,583.0

*2013 data are through June

$100 Note Inventory and Payments(12-month rolling average, millions of pieces)

13

0

400,000

800,000

1,200,000

1,600,000

2,000,000

0

100,000

200,000

300,000

400,000

Fit Inventory New Inventory Payments to Circulation (Right Axis)

Financial Crisis

$100 Note Inventory By Design Type(millions of pieces)

14

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,000

Current-Design New-Design

Low Risk of Insufficient Inventory

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

4,000,000.0 Sensitivity AnalysisReserve Bank Ending Inventories of NXG $100 Notes

20% Increase 30% Increase 40% Increase

RB

End

ing

Inve

ntor

y (b

illio

ns o

f not

es)

40 days payable

Sensitivity analysis is based on average monthly $100 note payments to circulation during 2012 15

Release Date: April 24, 2013

For immediate releaseThe Federal Reserve Board on Wednesday announced that the redesigned $100 note will begin circulating on October 8, 2013. This note, which incorporates new security features such as a blue, 3-D security ribbon, will be easier for the public to authenticate but more difficult for counterfeiters to replicate.

The new design for the $100 note was unveiled in 2010, but its introduction was postponed following an unexpected production delay. To ensure a smooth transition to the redesigned note when it begins circulating in October, the U.S. Currency Education Program is reaching out to businesses and consumers around the world to raise awareness about the new design and inform them about how to use its security features. More information about the new design $100 note, as well as training and educational materials, can be found at www.newmoney.gov. 16

Goal: To protect and maintain confidence in Federal Reserve notes

Overall Program Objectives:Educate users of U.S. currency about:• The appearance of genuine Federal Reserve

notes• The security features in genuine banknotes• How to use security features to differentiate

between genuine and counterfeit banknotes

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Global Currency Education

Highlights of the $100 Note Program • More than 30 international and domestic training

seminars in locales ranging from Angola to Vietnam; • 25 international and domestic media events on or

around the October 8 issue date hosted by U.S. embassies internationally and Federal Reserve Banks domestically; and

• An email outreach program to more than 170,000 U.S. cash handlers and law enforcement stakeholders with information about how to prepare for the introduction of the redesigned $100 note.

• 10 different educational materials in 25 languages.18

How We Educate

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Global Audience

Events

Website

Training

Media Outreach

Integration

Fulfillment

Conferences

Direct Outreach

Social Media

Resources for Financial Institutions

20

www.newmoney.gov

Now Circulating!