Банкеръ Weekly

Briefs

MONEY CIRCULATION TO BE SUBJECT TO NEW RULES

Tsvetan Manchev, BNB Vice Governor, to the BANKER WeeklyMr. Manchev, the BNB is preparing a special new ordinance on the transparency of money circulation. Which relations in the financial sector will it regulate?- The ordinance will include the rights and obligations of the BNB, and of all participants in the financial market which accept, count or distribute coins and banknotes. In addition to banks such activities are carried out by finance houses, exchange offices, and specialized firms whose subject of operation is collection of money. Currently, for instance, there is not a legislative act, obliging banks and exchange bureaux to accept from citizens and companies banknotes which are worn out, damaged, or are not in compliance with BNB's standards in any other way, and hand them over to the central bank. There are no regulations, saying how to act when a suspicious banknote enters a financial institution. All these cases have been already described in the ordinance we are presently drafting. It sets the general regulatory framework, with which all companies dealing with distribution of money should comply. BNB's document under draft will also describe the terms on which a company, banks included, could be engaged in money processing and distribution. We stipulate that the BNB will be issuing a special permission for the purpose. The machines, used for checking, counting and sorting of coins and banknotes shall be liable to inspection and approval. Again, the aim is to guarantee high standards in the distribution of cash in order to maximally reduce the number of coins and banknotes that do not comply with the quality requirements. I'd like to underline that the drafting of that ordinance was necessitated by the amendment to the BNB Act, passed in the beginning of 2005, and is a result of the EU and European Central Bank (ECB) requirements to the money circulation. What happens now if a citizen wants to deposit or change in a bank a banknote that is worn out or faked?- In most cases banks refuse to accept such a banknote or keep it, forming their own catalogues about counterfeit money. However, there is not a regulatory document, obliging banks to send such banknotes to the BNB for expertise. The new ordinance will make them do so. After the ordinance is passed, if you go to a bank with a banknote which is not in compliance with the quality standards, e.g. it is worn out, damaged, etc., the financial institution shall be obliged to submit it to the central bank for expertise. If the BNB finds that the money has been damaged, it issues a document with which its owner will be able to exchange it in any bank institution. If it is established that the banknote is faked, the BNB keeps it and notifies the owner about it, but he will not get any compensation.Speaking about worn out or damaged money, how long is the life of a banknote? - This depends on the par value of the banknote and on how often it changes hands. Banknotes of small par value are made of cheaper materials and have less security features. Therefore, their life is shorter. But the danger of being faked is less because swindlers are not interested in counterfeiting banknotes of small par value. The banknotes of bigger par value, which are of interest to frauds are made of more expensive materials, have much more security features, and a longer life. BNB's experts have established that the average life of BG levs of small par value is one year, while for banknotes of a bigger par value it is up to three years. I cannot tell you at this stage how long the life of a BGN100 banknote is, as it has been in circulation for only 18 months so far. The BGN100 banknote has been on the market for comparatively a short period of time, but the BG levs of that par value already account for 10% of all issued levs. How would you explain that huge demand for BGN100 banknotes?- The great popularity that the BGN100 banknote gained very quickly is not at all surprising. It is due to the constantly increasing economic activity in Bulgaria. The number and volume of payments go up considerably each year. This is also evident by the quantities of money, drawn from ATMs in the country, which are the main channel for distribution of cash. Secondly, we should bear in mind the fact that although the modern means for effecting payments - debit and credit cards - are quickly coming into practice, payments in cash are still the traditional means for making payments in our country. Moreover, Bulgarians are still insuring themselves against unforeseen events by cashing money, often outside of the specialized institutions. And banknotes of big par value are the most convenient way to do that. For that reason BGN100 banknotes quickly established themselves on the market. Isn't the great widespread of BGN100s an indicator that a considerable number of companies prefer to effect payments in cash, too?- No direct connection could be made between the quick increase of the number of banknotes of big par value and the transfers in the grey economy, which you probably mean. I have already explained the reasons for the high demand towards big par value banknotes. Besides, the grey economy transfers are usually effected in foreign convertible currency and not in BG levs. Therefore, we may not claim that the increased activity of the domestic grey economy is the reason for the higher volume of BGN100s in circulation.Does launching of a banknote of a bigger par value in circulation signal intensified inflation processes in the economy?- Not always. And putting the BGN100 in circulation is an example of that. The banknote was issued in order to satisfy the higher demand for money, but not due to inflation. It was because of the speeding up of trade turnover.Does the domestic market need a banknote of a higher par value than the BGNB100?- The BNB is an institution which tries to follow a transparent policy. In that sense we announce our intentions of launching new banknotes in circulation well in advance. For the time being, however, we do not see a necessity for issuing banknotes of a higher par value than BGN100.A month ago the BNB published a three-year programme for minting jubilee coins. That has not been done so far. What necessitated the development of such a programme and making it public ?- BNB's desire is to plan the minting of commemorative coins in compliance with demand on the part of citizens. Therefore, we made quite a thorough research and an analysis of the market of such coins and came to the conclusion that it was good to draft a long-term programme for the minting of various issues, and inform about it in advance. Thus, we'll be able to conform it to the opinion we'll get from the citizens about it and we'll have a much more correct idea about the demand for numismatic coins. We hope that thanks to the stances and recommendations about the programme we'll be able to generate ideas for new issues of jubilee coins. At the same time I should say that the BNB won't yield to any pressure whatsoever for minting commemorative coins. Planning our activity in that direction we'll fully comply with the needs of the public. Lastly, I would like to ask you if BNB's printing house will be able to make euro banknotes after Bulgaria's accession to the common European Monetary Union?- All members of the European Monetary Union have set quotas for euro banknotes, which are calculated according to a very precise mathematical mechanism. They can either purchase them from independent producers, licensed by the European Central Bank or produce them in their own printing houses. These printing houses, however, should also be licensed by the European Central Bank. For the purpose they have to satisfy very strict security requirements, and their observation is inspected each six months by the European Central Bank, according to a very strict procedure. But that is done only after a country joins the European Monetary Union.

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