The Euro at 20

The euro: Global currency model and masterpiece of banknote technology
Wolfram Seidemann

When twelve states voluntarily delegate a fundamental part of their sovereignty to a jointly agreed, self-created project, and another seven countries subsequently follow suit, they must have a good reason for doing so. The provision of a currency as a public good is one of the most prestigious public services. But at the same time, the monopoly on currency is also one of the most important regulatory instruments and management tools. When the euro area countries decided to tackle these tasks together, they did so under the justified assumption that, among the global economic and monetary policy forces at play, they would be much stronger and better able to pursue their interests together than if they each worked alone.

The euro as a monetary policy forerunner

Those who like to sensibly weigh up and calculate the opportunities and risks of such major projects like to look to role models for guidance. Historical approaches such as the Latin Monetary Union, the Austro-Hungarian Monetary Union and the Scandinavian Currency Union were, however, much more modest in terms of their scope and aims. Attempts to research a common currency project on a scale comparable to the euro thus yield no results. In this respect, it is a progressive monetary project on a scale that has not been seen since the first known coins were minted in Mesopotamia in the 7th century BC. Therefore, the chance to be involved in the development and implementation of the euro in design, operational and production terms was, and still is, a particular highlight, especially because the euro was a success, despite many reservations in the run-up to its introduction. After all, it has already had to - and been able to - prove its stability and resilience on various occasions.

When the euro was launched in 1999, we were thus entering into uncharted territory in terms of monetary policy, even if key foundations had already been laid in the form of the European Monetary System (EMS) and the European Currency Unit (ECU). But the practical dimensions of the project, too, far exceeded anything that Europe's central banks or their suppliers had set in motion up to then.

While coins ranging from the 1 cent coin to the ?2 coin were to be produced exclusively at state mints, banknotes were intended to be manufactured at a mix of state central banks' in-house printing works and qualified private industrial partners. This was also necessary: the aim, after all, was to produce a huge number of new notes to common quality standards in a relatively short period of time. It was the sheer scale of these production specifications and the limited time involved that later turned out to be the biggest challenge.

The euro as a forerunner in the logistics network

Before the euro was introduced, central banks still put the production batches for their banknotes out to tender according to their requirements, and the notes were then printed by their own in-house printing works or a very limited number of specialised partners. But now a lot more players were needed to produce the necessary amount of money in the quantity and quality required: in addition to the various state printing works, over 50 suppliers were involved in the project, who were to shape the new single currency according to standardised rules.

The various processes and requirements, which up until that point had been country-specific, now had to be synchronised and aligned with new standards. This was only possible through intensive coordination. The ECB, which was still in its infancy, rapidly grew into this challenging task and assumed the role of guardian of an order that only came into being over the course of the project. In its new role, the ECB developed cooperation, coordination and leadership skills, without which the project could not have been successfully implemented. The ECB also took responsibility for defining specifications, steering complex processes in cooperation, coordinating the division of tasks and building up an elaborate quality assurance system for topics ranging from audits to certifications.

Despite this, the interplay between the ECB and its partners and suppliers remained challenging and time-consuming. For instance, there might have been a coordination meeting on the ?5 note in Lisbon on a Monday and another meeting about the ?10 note in Frankfurt on the Tuesday, with the same group of people attending a meeting about the ?20 note in Madrid on the Wednesday. Those involved were building up air miles to get the euro off the ground, so to speak.

The euro as a forerunner of banknote technology

As an industrial partner, we were able to build on decades of experience and expertise gained in the development and production of secure banknotes during the practical implementation of the euro project. We were conscious of the enormous responsibility we had in contributing to the success of this project, and we had butterflies in our stomachs during the entire period of work on the euro - and this is sometimes still the case even today.

For the first generation of the euro (ES1), the production of 14.9 billion banknotes worth a total of around ?633 billion was envisaged, of which the Deutsche Bundesbank - and thus we as a Bundesbank partner - were to take on the largest share. Supplying this enormous batch of new notes was the greatest challenge in the entire euro project and meant we had to gradually ramp up our human resources beyond the amount originally planned. Alongside fulfilling the quantitative requirements, we also had to ensure we implemented the high qualitative standards that were clearly and unambiguously defined from the outset: in technological terms, the new euro notes were to be state of the art.

Up until the 1990s, banknotes were still susceptible to simple counterfeiting, with colour photocopiers the horror of every central bank. But for the euro, each central bank involved could incorporate the security features it considered most important, in line with the ECB's stipulations. This brought about a "best-of-breed" package, in which the most advanced banknote technologies were combined. For instance, especially thin security threads, just 1.2 mm wide, were used for the new paper. Optically variable ink and foil elements that had not been seen before in currencies were also used for the first time. New pigments, silk-screen printing elements and marking materials, amongst other things, were also incorporated. No less important, we also took account of the Bundesbank's high expectations with regard to machine-readable security features. The result was banknotes that met the highest durability, security and efficiency standards.

The euro and protection against counterfeiting

In the constant battle against counterfeiters, the hurdles were thus set extremely high. The greater the denomination of euro banknote, the higher these hurdles were and are. Generally speaking, all security features have been designed for a security architecture on three levels. The obvious characteristics (Level 1) such as watermarks, security stripes or transparent windows are immediately recognisable, both visually and haptically, to everyone and can be easily verified. A key component of these are the characteristic haptics of intaglio printing in conjunction with cotton-based substrates. The next level up (Level 2) includes features such as magnetic pigments, fluorescent ink and electrical conductivity. They are only identifiable with aids such as magnifying glasses or UV lamps, or by mechanical means using appropriate sensors in cash machines, devices for depositing cash and banknote-processing equipment. And then there is an additional range of security elements whose specifications, features and identification methods are restricted to central banks and covered by strict secrecy measures (Level 3). These are not made public to prevent imitation attempts from the outset, and they therefore represent the largest obstacle for counterfeiters.

The paper quality and its security features developed for the introduction of the euro were so good that no major changes had to be made for the second series - the Europa series (ES2). At this point in time, the ES1-series banknotes had already proved they were suitable for practical use and secure against counterfeiting. Therefore, the development of the ES2 generation, which commenced in 2003, focused on specific improvements and not on serious measures or even fundamental new developments. The greatest progress was made with regard to the machine-readable colours, the foil stripe with a window and the silk-screen printing elements. There was no need, however, to change the see-through register or the watermark bar code.

Technological future of the euro

In view of the growing challenges we are facing, no end to the technological developments is in sight. As banknotes have to meet ever higher requirements and counterfeiters are always finding new technical capabilities, constant adjustments must be made and, at the same time, effects and designs that are difficult to imitate must be developed to make banknotes more secure against counterfeiting. Clear text technology is used in the case of Level 1, for example. This involves previously applied layers being partly removed, resulting in additional information, such as text, appearing clearly when held up to the light, which is where this security feature gets its name....