Demand for cash is growing everywhere, especially in Africa. Not everyone trusts the digital equivalent. From Moneyweb.
International cash handling group Travelex is in South Africa to train local banks and cash handlers on the latest US dollar counterfeit banknote scams, which have become increasingly sophisticated, to keep abreast of the advances in banknote security.
Counterfeiters, it seems, are more focused on the US dollar than shabby local currencies that often depreciate with alarming speed.
As the world’s reserve currency, the US dollar is in demand everywhere.
“US currency in circulation has grown at an average rate of about 7% annually over the past few decades, about two percentage points more rapidly than US nominal GDP,” writes Ruth Judson in a recent study titled Demand for US Banknotes at Home and Abroad: A Post-Covid Update.
Post-Covid, the rate of growth in demand for banknotes has remained steady despite falling US GDP.
Cash, it seems, will not die any time soon.
Though countries like Sweden have tried (and failed) to eliminate cash completely, it will likely be around for as long as most of us are alive, and probably longer. In a 2022 report, the US Federal Reserve forecast a doubling in demand for USD banknotes by 2030. For Travelex, Africa is its largest market. Last year, it shipped about $10 billion in USD notes to Africa, which is half of what it was pre-Covid.
“The average cash transaction size is falling, largely because people are impacted by the higher cost of living, but the number of people using US dollars has increased with population growth,” says Ross Martin, Travelex’s commercial manager of Africa.
M2 money supply growth in SA (which includes notes and coins in circulation) grew 182% in the decade to 2020, according to the World Bank, and ranged between 2% and 10% since 2021.
Dollar preferred in Africa
For many countries in Africa, the USD is the preferred transactional currency.
Zimbabwe’s abysmal experiment with the Zimbabwe dollar, then the Real Time Gross Settlement (RTGS) dollar, and most recently the gold and US dollar-backed ZiG (Zimbabwe Gold) has failed to curb runaway inflation, which is now about 55% a year.
It’s reckoned that more than 90% of transactions in Zimbabwe are now in USD.
Read:
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Central bank control, a cautionary tale
There is considerable talk in Africa about the introduction of central bank digital currencies (CBDCs), but Nigeria’s failed experiment with the eNaira, running on open-source blockchain technology, is a cautionary tale for others planning to go down that route. The digital naira, run by the Nigerian central bank, was seen as a new chapter in the government’s overall hostility to cryptocurrencies and a violation of privacy.
CBDCs are programmable forms of digital money issued by central banks.
They are an authoritarian’s dream, with the built-in capability of monitoring and censoring transactions, and the potential to prohibit certain types of transactions or attach an expiry date to money issued – violating several fundamental pillars of private property rights.
Listen: Will central bank digital cash ever take off in SA?
There is an abiding distrust of banks in many parts of Africa, and for good reason.
They are avoided like the plague by many with memories long enough to recall the brazen theft of customer deposits, often at the behest of corrupt political leaders, in countries like the Democratic Republic of Congo and Ghana.
Across the continent, the relative value of local currencies has been diluted through endless government borrowing and massive monetary issuance. The US dollar, for all its faults, is an obvious harbour against this impoverishment.
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Countries seizing counterfeit dollars
The USD is printed by the US Federal Reserve, but it is the job of the US Secret Service, which has an office in Pretoria, to track down counterfeiters.
It’s a cat-and-mouse game between the Secret Service and ever-resourceful counterfeiters who have shown themselves surprisingly adept at staying ahead of technological improvements in banknote printing, if not the law.
Just within the past year, Turkish authorities seized $1 billion in fake $100 bills destined for the African market.
Depending on the quality of the forgery, these bank notes will be sold for anywhere between 20% and 50% of their face value.
In May this year, investigators in Germany confiscated about $103 million in low-quality US dollar note forgeries originating in Turkey and destined for the US. Though the forgeries were not particularly good, they could be confused with real money in payment transactions, according to the German Bundesbank.
Earlier this year, Senegal authorities seized $8 million in fake USD banknotes as part of a crackdown on crime by the newly elected government.
Security features
In its first redesign since 1996, the new US dollar banknote introduced a blue holographic ribbon woven into the paper note, a colour-shifting ink on the 100 numeral, a watermark of Benjamin Franklin on the right and a security thread on the left imprinted with the letters ‘USA’.
Raised printing, which is rough to the touch, and micro-printing on Benjamin Franklin’s jacket collar make these new notes extremely difficult to forge, setting a high bar for counterfeiters, but that does not appear to deter some of the more determined criminals.
“Some forgeries are very good, and they will fool you on a casual examination, but we have been able to spot a number of these forgeries before they got out of control and report them to the Secret Service,” says Adam Kettle, Travelex’s UK wholesale director.
The British pound and Australian dollar are printed on highly durable polymer, a type of plastic, making them extremely difficult to forge (or even tear). The euro is printed on cotton fibre, giving the bank notes durability and a distinctive feel.
In 2023, the South African Reserve Bank introduced new bank notes oriented on a cotton substrate with watermarks, raised printing, security strips and holograms. These security features are intended to make them more difficult to counterfeit.
Read: SA upgrades banknotes to thwart counterfeiting
They may be difficult to fake, but counterfeiters are more likely to spend their time attempting to make decent knock-offs of the US dollar, currently worth more than R18/$1. You can be sure the US Secret Service won’t be far behind them.