Outsourcing Currency Printing: Countries Are Courting Risk

When it comes to printing currencies, the adage ‘love thy neighbour’ does not seem to hold much water. It is now accepted worldwide that unless there is a political power struggle or disturbance like the one we are seeing in Libya, outsourcing the printing of money does not go down well with the economy of any country. And the reason? A country’s economic sovereignty is always at risk if such a step is taken. This is precisely why countries prefer to print their own money. However, if one thinks this is how nations go about protecting their economy, we would be wrong.

The truth is – most nations outsource their currency printing. Thanks to globalisation, your kitchen, your living room, your car and your wardrobe may be filled with foreign labels. And when you pay for all these, you could well be handing out wads of currency notes that are also printed abroad. That’s like coming full circle as far as globalisation goes.

Let’s consider the case of India, which pulled up its central bank (RBI) that controls the policy of the Indian currency – the INR. With the country’s macroeconomics taking a beating due to rising inflation and the rupee turning a blue baby against the mighty dollar, India is in troubled waters right now.

Some time ago, the Committee On Public Undertakings (COPU) expressed serious concern over outsourcing currency printing that amounted to Rs 1 trillion (Rs 1 lakh crore), and stated that the particular decision put India at a huge risk regarding its economic sovereignty.

Terming it as an ‘unprecedented, unconventional and uncalled for’ measure, the parliamentary committee cautioned that such decisions should never be made under any circumstances in the future. It is really a matter of concern why a country like India, which battles fake currencies being printed and circulated by some neighbouring nations, has opted to outsource its currency printing when it has its own agency for this specific job. India and all other countries that have outsourced their currency printing at some point or on a regular basis, already have their printing facilities in place. But the ‘outsourcing’ decision is still taken although in most cases, governments are not the only agencies that take such initiatives. Banks, too, occasionally take the ‘liberty’ of doing so.

The World Bank figures show that about 50% of the 171 currency-issuing authorities print some portion of their currencies outside their own countries. It is estimated that about 20% of the world’s cash is printed by private companies that operate in complete secrecy. However, the security measures followed by such agencies and the mechanism adopted to print the currency can always pose a tough challenge to the printing countries while the consuming nations always face a huge risk.

So who all are the leading players in the global market? The Canadian Bank Note Company, which was set up in 1987, takes orders from more than 20 countries while a German firm has printed currencies of over 60 countries. Crane Currency operating from Sweden and Massachusetts has also been around for a long time. But the cake is taken by De La Rue, the company based in the UK, which has been printing currencies of 150 countries since 1813. Australia, too, is a significant player in this space. The Royal Australian Mint prints its own polymer currency notes and also mints coins for nearly 20 countries, choosing from a range of developed and developing nations.

As for India, the state-run Security Printing and Minting Corporation has been meeting the currency and coins demands locally. When it outsourced the currency printing job, India had signed a deal with three currency printers to complete the task.

When a country’s money gets printed outside, one cannot rule out the threat of economic destabilisation as the contract agencies/authorities may print in excess and the ‘extra’ money may pass into the hands of unscrupulous elements, fuelling terrorism, extremism or other negative activities that can create disturbances within the country. Procuring currencies from other countries is termed as ‘counterintuitive’ by experts. And the way it can eat into an economic system is easy to understand, whether or not there are loopholes in the printing, storing or transferring aspects. But this has neither discouraged, nor stopped the countries that are outsourcing their currency printing.

Even after the big debate in 2010 and warning by the parliamentary committee, it is not realistic to expect that India will stop the outsourcing anytime soon. In spite of the warning and showdown at the country’s highest seat of democracy and a stern rap from financial institutions, the country continues with the practice, even now.

For the ‘service’ providers, however, it is nothing but a ‘profitable’ business. The UK may well be reticent to enter the Eurozone, but it has never barred the country’s minting house (the Royal Mint) from producing euros as and when it is required. Also, hardly anyone knows how much money the currency printing companies make. Bound by heavy security and extra-tight confidential laws, they may well be making a fortune, but no one is talking yet.