Market Analysis – 93151702 – National bank notes

Executive Summary

The global market for new national banknotes is estimated at $10.2 billion USD as of 2023, with a projected 3-year CAGR of -1.8% as digital payment adoption accelerates. While the market faces secular decline, demand is supported by population growth in developing economies and the constant need to replace worn currency and upgrade security features. The single greatest threat is the rapid development and potential adoption of Central Bank Digital Currencies (CBDCs), which could fundamentally displace the need for physical cash within the next decade, posing an existential risk to the entire supply base.

Market Size & Growth

The global Total Addressable Market (TAM) for banknote printing and substrate supply is estimated at $10.2 billion USD for 2023. The market is mature and projected to experience a slight contraction over the next five years, driven by the increasing prevalence of digital transactions in developed economies, which is partially offset by growth in cash-centric developing nations. The three largest geographic markets by production volume are 1. China, 2. India, and 3. The Eurozone.

Key Drivers & Constraints

1. Demand Driver (Developing Economies): Population growth and increasing financial inclusion in parts of Asia, Africa, and Latin America continue to drive demand for physical currency, creating a baseline volume for banknote replacement cycles.
2. Constraint (Digital Payments): The rapid adoption of mobile payments, contactless cards, and digital wallets, particularly in developed and middle-income countries, is the primary force reducing the transactional demand for cash.
3. Driver (Security Upgrades): Central bank mandates to combat increasingly sophisticated counterfeiting threats require the regular introduction of new banknote series with more advanced security features (e.g., complex holograms, color-shifting inks), driving recurring revenue for printers.
4. Constraint (CBDC Development): Over 100 countries are exploring Central Bank Digital Currencies. The successful launch of a major CBDC (e.g., China's e-CNY) would serve as a catalyst, accelerating the decline of physical note demand globally. [Source - Atlantic Council, March 2024]
5. Cost Driver (Raw Materials): The price of key inputs, especially high-grade cotton for paper substrate and petrochemicals for polymer substrate, introduces significant cost volatility into the production process.
6. Regulatory Constraint (Environmental): Increasing government and public scrutiny over the environmental impact of currency production (water usage, chemical effluents, end-of-life disposal) is forcing suppliers to invest in more sustainable practices and materials.

Competitive Landscape

The market is a highly concentrated oligopoly with extreme barriers to entry, including immense capital investment for secure facilities, proprietary intellectual property for security features, and the requisite trust of sovereign governments.

⮕ Tier 1 Leaders * De La Rue (UK): A dominant commercial player with a long history, offering integrated services from design to printing and paper supply. * Giesecke+Devrient (G+D) (Germany): A technology leader providing high-security substrates, printing services, and processing systems. * Crane Currency (USA): The exclusive supplier of banknote paper to the U.S. Treasury and a major global supplier of secure micro-optics and paper. * Komori (Japan): A leading manufacturer of specialized banknote printing presses, holding a critical position in the equipment supply chain.

⮕ Emerging/Niche Players * CCL Secure (Australia): The primary innovator and market leader for polymer (polypropylene) banknote substrate ("Guardian"). * China Banknote Printing and Minting Corporation (CBPMC) (China): A state-owned behemoth, the world's largest printer by volume, increasingly looking to export its services. * Oumolat Security Printing (UAE): A new, state-of-the-art facility in the Middle East aiming to serve regional demand.

Pricing Mechanics

Banknote pricing is typically quoted on a per-note or per-thousand-note basis, determined through highly secure government tenders. The price build-up is dominated by the substrate and the complexity of embedded security features. A base paper note may cost $40-60 per 1,000 notes, while a durable polymer note or a paper note with advanced features like micro-optic threads and color-shifting ink can exceed $150-200 per 1,000 notes.

The final price is a sum of substrate costs, security feature licensing/material costs, multi-stage printing costs (intaglio, offset, screen), and services like design and secure logistics. The three most volatile cost elements are:

1. Cotton Linters: The primary raw material for paper substrate. Price volatility can be significant. (Recent 24-month change: est. +15-25% peak, followed by normalization).
2. Energy: The intaglio printing process is extremely energy-intensive. (Recent 24-month change: est. +40-100% in some regions, especially Europe).
3. Petrochemicals: Feedstock for polymer substrate and various inks. (Recent 24-month change: est. +20-35% linked to crude oil price fluctuations).

Recent Trends & Innovation

• Substrate Transition (Ongoing): Central banks continue to evaluate and adopt polymer substrates for lower-denomination notes due to their superior durability (3-4x lifespan of paper) and water resistance, despite higher upfront costs. The Bank of England completed its transition to polymer in June 2021.
• Advanced Tactile Features (2023): New series designs are incorporating more sophisticated tactile and raised-print features (e.g., via intaglio printing) to improve accessibility for the visually impaired and serve as a difficult-to-replicate security element.
• Supply Chain Consolidation (October 2023): Crane NXT announced the acquisition of OpSec Security, a provider of brand protection and authentication solutions. This move signals a strategy to diversify away from pure currency and leverage security feature technology in adjacent commercial markets. [Source - Crane NXT, October 2023]

Supplier Landscape

Note: Market share is for the contestable commercial market; state-owned printers like CBPMC (China) and BEP (USA) represent massive captive volumes.

Regional Focus: North Carolina (USA)

North Carolina does not host a banknote printing facility; U.S. currency is printed by the Bureau of Engraving and Printing (BEP) in Washington, D.C., and Fort Worth, TX. However, the state's significance is threefold: 1. Demand Center: As a major U.S. banking hub, Charlotte-based institutions (e.g., Bank of America) are primary distributors and processors of physical cash, influencing demand for cash-in-transit (CIT) and cash-handling services. 2. Supply Chain Hub: The state's strong chemical and textile industries represent a potential sourcing location for precursor materials, such as specialty chemicals for inks or high-grade cotton linters for paper substrate, feeding into suppliers like Crane. 3. Labor & Logistics: North Carolina's robust logistics infrastructure and skilled manufacturing labor force make it a viable location for suppliers of banknote processing equipment or related security services.

The outlook is for stable regional demand for cash handling, even as transactional use declines.

Risk Outlook

Actionable Sourcing Recommendations

1. Mitigate Substrate Risk through Dual-Track Tenders. For the next currency series procurement, issue RFPs that mandate proposals for both advanced paper (with micro-optics) and polymer substrates. This creates competitive tension, provides a hedge against volatility in either cotton or petrochemical markets, and allows for a full lifecycle cost analysis, including durability and processing efficiency gains from polymer, targeting a 10-year total cost of ownership reduction.

2. Future-Proof with Digital Integration Mandates. Require all prospective suppliers to demonstrate a clear technology roadmap for machine-readable security features compatible with next-generation automated teller and counting machines. This ensures physical notes remain efficient to process and secure against digital counterfeiting, preserving the viability of our cash infrastructure for the next 7-10 years as we navigate the transition toward a potential CBDC.