Bank of England Switching to Plastic Money. Why Won't the Fed?


It's a good thing England is on the metric system -- the Pound will weigh less in 2016.

The Bank of England, or BoE, announced yesterday it would begin circulating new, smaller, £5 and £10 banknotes printed on plastic beginning in 2016. Not only do the new plastic notes weigh less than current cotton-paper notes, plastic provides added security to the notes in addition to several environmental benefits.

Winston Churchill will grace England's first plastic banknote. Source: Bank of England.

In the course of the bank's due diligence, plastic notes received overwhelming support from the public. The BoE conducted a survey of 13,000 individuals, and 87% supported the switch to plastic. Those that got to see the plastic notes in person were 20% more likely to support the change.

Why there's so much support
The switch to plastic likely saw such great support in England because there are numerous benefits without much change. Here are a few advantages:

  • plastic notes are hard to counterfeit. Across every market in which plastic notes have replaced paper notes, counterfeiting rates are 80% to 90% lower. Plastic notes support all the security features of paper notes, in addition to features like diffraction grating (think the prism effect of light shining on grooved plastic film) and transparent windows.

  • plastic notes last longer. They last three to five times longer than paper banknotes. Plastic is hard to tear, waterproof, and takes much longer to get "tatty," as the BoE put it. As a result, the BoE will spend less on the production of banknotes. It estimates it will save £100 million pounds in the 10 years after the notes are introduced. Additionally, longer lasting notes decrease the environmental impact of printing currency.

Source: Bank of England.

  • plastic notes are cleaner. They are resistant to dirt and oil, and they can even been cleaned off with a damp rag. As a result, ATMs and other cash-handling machines will be better able to read the notes. Banks have reported that plastic notes are easier to handle than paper. Additionally, plastic notes are proven to carry less bacteria.

  • plastic notes are better for the environment. The BoE conducted a study examining the environmental impact of plastic notes versus cotton-paper notes throughout all parts of a note's life cycle across seven environmental indicators. The plastic notes were better in six out of seven. The benefits are mostly produced from the lower raw material demand due to the longer life of plastic banknotes. A similar study in Canada, which introduce plastic banknotes in 2010, saw similar results.

The U.S. continues to lag in banknote design
In October, the Fed started circulating the redesigned $100 bill. It featured numerous new security features, chief among them the blue security ribbon through the middle, and the camouflage bell in the inkwell. It's definitely the most sophisticated banknote the U.S. has ever produced, but it stayed with paper.

Source: WikiCommons.

There are reasons to forego plastic despite its advantages over paper: the upfront cost, the transition costs, they're more difficult to recycle. In fact, only seven of the 23 countries that use plastic notes have made a complete transition. None of these disadvantages, however, ought to stand in the way for a country as well-developed as the United States.

Canada is one government that's begun a transition. When the country began rolling out polymer notes in 2011, according to The New York Times, people complained about their slipperiness and their foldability. There were also concerns that the money would melt on hot radiators or dashboards in cars, or malfunction in intense cold conditions. Those myths, along with one that the bills were infused with a maple syrup scent, have largely been dismissed, and general grumbling about the plastic bills has subsided.

But plastic, or polymer, notes are more controversial than paper notes, even if just slightly. The fact that the BoE was compelled to conduct a survey to ensure (and, more likely, prove) the public supported plastic banknotes is an indication that there was at least some hesitation to make the change.

The Federal Reserve is extremely conservative and slow to change. Advances in paper note technology allowed it to implement a design it feels is secure without drawing any criticism in a time when it's already under scrutiny every month regarding quantitative easing.

Steeped in tradition
Americans have a certain perception of England as traditionalists. While England's currency will maintain many of its traditional elements, the substrate on which it's printed isn't one.

The United States, on the other hand, has featured the most consistent design on its bills since the notes were standardized in 1928. The fact that the Fed hasn't made the transition to the more secure, durable, clean, and environmentally friendly substrate is indicative of its conservative nature.

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Adam Levy will happily accept U.S. dollars printed on paper. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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