Faulty paper blamed for new banknote delay

The introduction of new Swiss banknotes has been postponed for a second time because of technical problems linked to the paper to be used, a new report says.

Designs for the new series of notes were first made public by the Swiss National Bank (SNB) in 2005.

Initially, the central bank planned to put the high-tech bills into circulation by 2010, but this date was put off until later this year.

Now, the Tages-Anzeiger newspaper is reporting that the new money will not see the light of day until at least 2014.

The newspaper says the problem for the delay lies with a paper manufacturer in the canton of Graubünden.

In February, the SNB announced “unexpected technical problems” for delaying the release of the notes for at least a year.

The central bank did not go into details.

But Tages Anzeiger says the problem lies with LandQart, a company based in the Graubünden town of Landquart, which supplies paper to Orell Füssli, a firm that has printed Swiss money for decades.

LandQart, taken over by the Canadian company Fortress in 2006, is apparently having difficulties producing paper of the right quality on a consistent basis, the newspaper says.

The SNB has high demands for notes that meet cutting-edge requirements for security against counterfeiting.

LandQart reportedly provided paper to Germany’s state printer for the production of euros that was defective because a security band “oxidized”.

The German printer is not commenting on the situation.

The Swiss National Bank says the current banknotes “continue to offer a high standard of security and can be produced in sufficient quantities”.

As a result, “the supply of high-quality banknotes is guaranteed at all times”.

No firm date has yet been announced for the introduction of the new notes.

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Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?