The sorting machines have been set to meet European standards. There are very precise standards for the maximum amount of permitted smudging, wear and damage. For instance, a tiny speck of sticky tape is allowed, but a large piece is a reason for rejecting reuse of the banknote. And if a vertical tear is more than 8 mm, the banknote is also rejected. Based on such criteria, DNB sorts banknotes for reuse. The standards have been laid down by experts and are the same for the whole Eurosystem.
Recently,DNB carried out a survey to find out what people think about the quality of our banknotes. In a laboratory, 97 test subjects were presented with a series of 45 banknotes containing one or more of the following nine deficiencies: smudge, damage, tear, stains, sticky tape, creases, dog-ears, slackness and graffiti. The question asked was: “Do you think this banknote can still be used?” It turns out that the public’s opinion about this sometimes varies a great deal from the selection made by the sorting machines.
Dog-ears and damage
The worse the deficiency, the more inclined the respondents were to reject the banknote. This seems logical. But with respect to dog-ears, graffiti and slackness of the banknote this was different. The degree of the deficiency does not matter in that case. You either approve or you don’t. Opinion about these deficiencies was therefore strongly divided. Some people do not approve at all of a banknote with a tiny ink blob, whereas others are not even bothered if the banknote is written all over. On average, three out of four people do not consider graffiti on a banknote a problem. And dog-ears are quite alright says the majority (more than 80%).
While respondents do not mind whether a banknote feels a bit slack, they are highly critical of damage. And they were fairly unanimous in this respect. A banknote with a tiny tear is still acceptable, but a banknote with a somewhat larger tear is rejected. Banknotes with a piece missing are absolutely unacceptable to our respondents and very smudged banknotes are also rejected en masse.
All in all, smudges, tears and damage form the key reasons for rejecting banknotes. Graffiti, slackness and dog-ears are least often a reason for rejection.
The public versus sorting standards
It is interesting to hold this outcome next to that of the sorting machine. It gives some remarkable insights.While the public does not mind dog-ears, the sorting standards are very strict in this sense. They even reject notes with the tiniest of dog-ear. Given the judgement of the respondents, this standard could be relaxed. The reverse is true for banknotes that miss a small piece. For sorting machines, damage is seldom a reason for rejection: only 1% of all rejected banknotes are written off for this reason. But the public is highly critical of tears and other damage, especially if a larger piece is missing. The sorting machines now actually pass more lightly damaged banknotes than the public would like. It makes sense to raise the acceptability criterion for this aspect.
Combinations of deficiencies
Banknotes with several deficiencies are unacceptable according to the respondents. So far, the sorting machines have not considered combinations of deficiencies. Banknotes are rejected or accepted on the basis of a single criterion. If a banknote has one clear deficiency, it will be rejected. But if it has three small deficiencies, each within the scope of acceptable, it will pass. The public, on the other hand, feels the combination of smaller deficiencies forms a reason for rejection. In particular the combination of smudgy, damaged, and stained is an eyesore to many. A banknote with light smudging and small stains is rejected by 45% of respondents but accepted by the sorting machine. There is considerable room for improvement here. The sorting standards can be adjusted, so that banknotes with a combination of several smaller deficiencies are rejected.
DNB thinks it is important to carefully weigh costs against quality. So banknotes should not be rejected and replaced too soon, but the quality should meet people’s expectations of a central bank. Central banks now destroy some banknotes based on specific sorting criteria while the public still approves of them; conversely, central banks recirculate banknotes that people do not find acceptable. Some minor adjustments to the sorting criteria will allow central banks to reject fewer banknotes. Annually, DNB destroys 160 million banknotes because they are smudged, damaged or worn according to ECB standards. This could be reduced by a third, if DNB is a bit more accommodating to dog-eared banknotes. This is good news for the environment and money-wise. If more banknotes are brought back into circulation, fewer will have to be produced. For the whole of Europe, this could mean savings of tens of millions of euros. In addition, a central bank could improve its service by no longer supplying banknotes that the public considers substandard, but only those that everybody will approve of. For the future, this means fewer damaged banknotes. But with more dog-ears.
Naturally, all findings stated here only apply to the Netherlands. Hopefully, this survey will kindle the discussion at a European level about involving the public in determining the standards for destruction of banknotes