It is hard to believe that it is only two years ago that the financial markets went into meltdown, throwing the global financial system into disarray and precipitating a recession from which many of the world's economies are only now beginning to emerge. Terms such as sub-prime, credit crunch, quantitative easing and double-dip recession soon became part of the common lexicon as governments stepped in to mitigate the consequences of the financial crash and prevent economies from going into free-fall. 

As predicted at the time, the currency industry was less affected by the events than other industries. This prediction was made on the basis that cash is, compared with other 'commodities', a utilitarian tool that is largely immune to the vagaries of economic cycles. But one notable feature of this particular economic crisis was the flight to cash - literally - with demand for banknotes surging.

As a result, banknote production volumes, and the companies that produced them, held up well. So did the sector that distributes this cash. Faring less well - and again, expected - was the sector producing systems for optimising and automating cash circulation and distribution. With financial institutions under the cosh, and investment plans put on hold, demand took a hit. Even so, while sales and profits dipped, companies in this sector still performed better than their national counterparts in other sectors, as shown by our Industry Watch.

Moving Along Happily

As a result, one year ago, we were able to report that the banknote world was moving along happily; profit levels were good for many, counterfeiting seemed under control, the global economic crisis seemed to be receding. Admittedly Securency had allegedly been paying excessive commissions to their agents, but it seemed like a little 'local difficulty.' 

12 months ago, the UAE were planning a new banknote printing plant, De La Rue (Currency News' 'Star of the Year') had reported 3% year-on-year turnover growth and 17% growth in PBITA, and the commercial papermakers were no doubt pleased to learn that the Indian government had put on hold the investment in increased domestic Indian banknote papermaking capacity.

Moving forward a year, the fiscal stimulus packages that prevented many economies from going into free fall are now being eased off. Some economies, notably in the Far East and Latin America, are beginning to take off again. Pitted against this, the largest economy - the US - is still teetering. And in Europe, the bail-outs in Greece and Ireland, with the possibility that more countries will follow suit, is putting the euro under increasing strain and exposing the inherent flaws in the system. Speculation that the euro will collapse altogether are rife and are being given credence by the failure of the Eurozone countries to agree on how to deal with the immediate crisis and in the longer term. The cost of shoring it up will be a heavy one, not just for those members whose economies are in trouble, but for those that are having to fund the bail-outs as well.

Just as the economic events of 2010 and the broader outlook is something of a mixed bag, so is the state of the currency industry. On the positive side, global demand for banknotes has continued to grow, by some estimates between 6-8% to new highs of about 145 billion notes. Some state printers have outsourced banknote printing - Philippines, Venezuela, Argentina - and others with their own paper mills, such as China, have been buying banknote paper on the open market.

Also on the positive side, the growing demand for efficiencies in the cash cycle, coupled with confidence and growth returning to the financial and retail sectors, is likely to result in investment in cash recycling and automation technologies stepping up. The recent launch of solutions from many of the leading suppliers and a raft of new partnerships point to the optimism and opportunities in this sector.

Looking at the Negatives

On the negative side, however, as we have reported in recent issues of Currency News, the substrate market in particular - current spikes in demand notwithstanding - is facing a triple whammy of over-capacity, falling prices and significant increases in the price of raw materials. This will be exacerbated by the Indian banknote paper project, which is again top of the agenda, and Bank Indonesia's plans to build a new paper mill.

Another notable feature of 2010 is the harm that the reputation of the industry has taken. De La Rue called in the UK's Serious Fraud Office to review the company's affairs, prompted by problems at its mill which led to a collapse in its share price and the departure of several senior managers. Oberthur Technologies have made an un-solicited bid and undoubtedly others are circling too. It remains to be seen whether the largest commercial banknote printer and papermaker will still be independent in a year's time.

In Australia, meanwhile, the Securency saga continues. The company is now up for sale. This may or may not put an end to the current media furore, which is prompted in part by the fact that it is half-owned by the Australian government.

Euro Series 2 still has not seen the light of day, nor its design and issue date released. The new Swiss National Bank series is also delayed. The US, meanwhile, has had to put back the issue of the new $100 because of, as yet, unexplained but very public problems with paper containing a new super-wide Motion 'ribbon'.

All in all, although the industry has managed to weather the economic storms of the past two years, it has done less well in weathering its own storms. Much of this is of its own making - over emphasis and insufficient testing of new technologies, cutting corners, adding new capacity at the time when it is not, and certainly will not be, needed. The last six months in particular have been something of a rocky ride.

Wishing for a more prosperous times ahead is one thing. Hoping for more normality is probably more appropriate. With so much going on - good and bad - in the economy at large and in the industry itself, 2011 is certainly going to be an interesting year.