Eesti Pank guarantees the existence of cash

To ensure that people want to use money (the euro) and that they trust it, they have to be confident that it is possible to pay with it everywhere and that other people or companies will always accept it. Money must also be of good quality in terms of security features and appearance. The confidence of people and companies in money helps to ensure that the economy functions, i.e. that a bank card and cash are equal means of payments and both are used to carry out daily transactions. As the function of the central bank is to issue cash, it must also guarantee the quality of cash.

Cash circulation means the movement of funds from Eesti Pank to banks, from banks to companies and people and then again along the same route back to Eesti Pank. To enable the circulation of money, it must be physically present and the Governor of Eesti Pank must approve the issuing of cash from the repository of Eesti Pank with their signature. Thus, Eesti Pank must have sufficient cash reserves to ensure that the cash needs of people and companies are always met. These reserves are deposited with Eesti Pank, which is why the bank building must be secure and guarded.

The lifespan of money, i.e. how it wears out during natural circulation, is of different length. The lifespan of banknotes with lower denominations is shorter, because they are used more often. For instance, the average life of a five-euro note is one year and two months, while that of a fifty-euro note is three-and-a-half years. Coins may last for 20 years or more.

Eesti Pank checks all notes issued to banks. This applies to brand new money and money that has been repeatedly in circulation. All notes that are dirty, worn out or damaged or that have been washed in a washing machine or defaced are destroyed.

Genuine euros have specific security features

Euro notes consist of seven denominations: 5, 10, 20, 50, 100, 200 and 500 euros. They are valid as legal tender throughout the euro area.

The list of security features of banknotes is rather long and people cannot probably remember all of them. Taking into account that the euro is widespread all over the world and that criminals try to cheat people using counterfeit money, it is beneficial to learn at least three of the security features.

The easiest way is the feel-look-tilt method.

1. Feel the money. Your fingers will feel the raised print, that reaches a little higher off the paper.
2. Look at the banknote against the light. A genuine banknote has a watermark, a security thread and a see-through number on the front and back.
3. When tilting the banknote, a shifting image appears on the hologram on the front. On the back, you can see a glossy stripe (on the 5, 10 and 20 euro notes) or a colour-changing number (on the 50, 100, 200 and 500 euro notes).

To verify the authenticity of money, several features should always be checked. This method should also be applied if a currency counting machine in a store does not accept the money. Another possibility is to take another banknote of the same denomination and compare the two. It is important to verify that cash is genuine, because no country will compensate victims of counterfeit money for the losses.

What should I do if money looks unusual?

Worn out, burnt, washed, dirty, torn or defaced banknotes can be replaced in a bank office.

Banknotes with manufacturing errors

The quality of money is controlled strictly and several times. Nevertheless, in rare cases banknotes may enter circulation that are missing security features or have an excess of them due to a manufacturing error, that have dimensions not corresponding to standards or that have dispersed printing ink on them. This is principally damaged cash, but the damage is caused by the manufacturer.

The defective banknotes are legal tender. Nevertheless, they must be removed from circulation. This money is considered a special type of damaged banknote and can also be replaced in a bank office.

Counterfeit money

Counterfeiting is the unauthorised reproduction or alteration of money in such a manner that in ordinary circulation the counterfeit money seems genuine to bona fide people. Counterfeiting also includes making money in a prescribed place and manner, but without the permit of an authorised state agency. Counterfeiting and intentional use of counterfeit money are criminal offences.

Counterfeit or suspected counterfeit money

If a banknote or coin seems counterfeit, you should take it to the police. A user of counterfeit money who is not aware they are holding it need not be afraid of a penalty. However, procedural acts may take time and this must be taken into account.

Notifying the police is absolutely necessary in the event of suspicion of a counterfeit banknote or coin. If you go to a bank or currency exchange office to replace or check a suspected counterfeit banknote, they must also notify the police. The authenticity of money is established through expert analysis generally performed by the Estonian Forensic Science Institute (EFSI) in Estonia.

Every cent is valuable

One euro equals 100 cents. Euro coins consist of eight denominations: 1, 2, 5, 10, 20 and 50 cents and 1 and 2 euros. The material, size, mass and thickness of each coin are different. One side of euro coins is common and symbolises Europe. This side also has the denomination of the coin, marked in large numbers.

The authenticity of coins can also be verified in several ways. The easiest way is to remember that the edges of euro coins are different when you feel them. The edge of the one- and five-cent copper coins is plain; the edge of the two-cent copper coin has a groove. The edge of the ten- and fifty-cent gold coins has scallops; that of the twenty-cent gold coin has seven scallops alternating with a smooth surface. The one- and two-euro coins contain both gold and silver. The edge of the one-euro coin has three parts with fine repeated scallops alternating with three smooth parts. The edge of the two-euro coin has fine repeated scallops and edge lettering that is different in each country.

How are euros made?

The details of manufacturing cash are only known to a small group of people, with security being foremost. Banknotes and coins can only be manufactured by well-secured manufacturers holding a special licence.

Banknote paper is durable and differs from ordinary writing paper. It has a specific rough texture. Banknote paper is made of cotton, long fibres of which ensure resistance to tearing and folding.

To enhance security, fibres that are visible macroscopically or which are fluorescent in ultraviolet light are mixed in with the paper pulp when making banknote paper. A security thread is also added along with watermarks. Thinner parts that seem lighter and thicker parts that seem darker than the rest of the paper when holding it up against the light are formed on a banknote when making watermarks.

Printing banknotes on paper

When printing banknotes, different forms of printing technology are used that help to create a graphic background, layer security features over one another on the front and back, create a relief i.e. raised surfaces felt with the finger or print tiny micro-lettering that can only be read with a magnifying glass. After printing, a hologram mark or ribbon is fastened to the paper by way of hot pressing.

Broadsheets and printing quality are repeatedly controlled during the manufacturing process. This is carried out both on the production line and thereafter. The control may include single broadsheets or all output. During the automatic quality control at the end of the manufacturing process, defective banknotes are automatically removed and destroyed.

Minting coins

Companies manufacturing metal coins can be known as mints, minting companies or engraving and printing companies. Diverse alloys are used to make coins. Sheeting is manufactured from a suitable alloy, from which rounded coin blanks are stamped.

A relief with an appropriate design is pressed on the surface of a coin during minting. For this purpose, dies must first be made. At first a master die is made on the basis of the coin design, which then serves as the basis for producing working dies. Blanks are then engraved into coins by using working dies and machines. The mass and diameter of a coin is automatically checked by a coining machine and, in addition, random visual inspection of coins is carried out.

Money is ordered by central banks in the euro area together

The European Central Bank and national central banks in the euro area print euro notes together. Cash experts from central banks analyse how many banknotes are needed within the euro area and, as a result, the European Central Bank confirms the number ordered in the Eurosystem in total and the quantity of coins issued in circulation. The European Central Bank also approves the division of a manufacturing plan of banknotes between countries, i.e. which banknotes are manufactured by each central bank and how many.

Not every country manufactures banknotes of all denominations in the euro area – their production is ordered jointly and quantities and expenses are divided on the basis of the participation of a national central bank in the Eurosystem.

The first euro banknotes for the manufacture of which Eesti Pank was also responsible were printed in 2012. To that end, Eesti Pank cooperated with other central banks in the euro area because it was more beneficial. The mark of the Estonian state on these euro banknotes is the letter “D”.

See also: how did money come about?

When holding a banknote or bankcard in your hand, have you ever thought about the actual meaning of money and the possibilities it provides?

Let’s think back to a time when money did not exist... What would have happened if a chieftain wanted to buy three sets of chain armour from the blacksmith for a work horse, but the blacksmith wanted bearskins instead? How many bearskins would be equal to one work horse?

Such ancient barter trading could get quite complicated. The most important feature of barter trading is that goods of a certain value are exchanged. Today money helps resolve such situations.

Money is a unit of account. It clearly expresses the value of goods and the amount of income and expenses, which can then be easily compared. Money is a means of exchange and payment in trading, because all goods can be exchanged for money. In addition, money preserves value: the value of money usually survives for a long time; money can be collected and used over a long period of time.

Forms of money

1. Primitive money

Primitive money is goods or products with a definite agreed value.

Today there are still places where primitive money is used.

Some island nations in the Pacific Ocean use cowries as money to this day.

Primitive money can be goods that are liked by people and that are easy to transport.

Estonian SSR, 1978

Soviet Estonia also used its own primitive money. Money had no proper value because the lack of goods was greater than the lack of money. As such, services were paid for in vodka, petrol and candy. Sometimes a bottle of vodka or a box of candy travelled in a long circle and eventually found its way back to the initial owner.

1. Precious metals

In comparison with other goods and products, it was more convenient to use precious metals as a means of payment, because they did not deteriorate and were in such low supply that they preserved their value. Precious metals had to be weighed and cut into pieces during trading, if necessary.

Ancient Greek agora, 752 BC

In the case of pedantic merchants, trading with weighted money could take a long time...

1. Coins

Coins were initially lumps of precious metals with a definite weight and metal content that had the sign of a sovereign stamped on them confirming their value. A coin with a definite denomination contained an agreed quantity of gold, silver or copper. This made settlements more convenient.

It was easier to count the correct quantity of coins in comparison with cutting up a metal bar and weighing the pieces.

Tallinn, Town Hall Square, 1516

If a peasant wanted to sell his cow in medieval Tallinn, he first rented a point of sale from a market bailiff. If, for instance, the price was agreed at five marks, the buyer could give two half-marks, eight quarter-marks and a large amount of schillings and pennies.

1. Paper currency

Paper currency developed from written certificates that goldsmiths and other money depositors started issuing to those who had deposited their metal money with them. In comparison with large amounts of money, paper currency was easier and faster to transport.

Saint Petersburg, Winter Palace, 1748

For instance, the amounts of copper coins in circulation in Russia had become colossal prior to the introduction of paper currency. The first money notes or assignation roubles were issued in Russia by Catherine II in 1769.

1. Plastic currency

Plastic currency or bankcards can be used today in ATMs and card readers, which is faster and more convenient than using paper currency. The triumphal reign of bank cards began in the 1960s, but paper and plastic currency still exist side by side.

Tallinn–Dubai, 2011

Preparations for a trip abroad can be made in different ways: either by wasting time and additional money on currency exchange or use the time you have for other things.

1. Account currency

The future is all about so-called account currency, which can already be used to make payments via computers or mobile phones from one account to another.

Tallinn, 2033

Currency might not have any physical form in the future: it will be enough for you to provide your fingerprint or key chain at a counter or utter your payment command, which is then registered electronically.

See also: why are cash reserves needed?

Central banks cooperate closely on matters related to the manufacturing of cash so as to share their experience and plan exact quantities of cash. Why is it necessary to make exact cash plans?

First, the availability of cash is a sign of confidence and reliability. Imagine how you would feel if you went to a bank one day and you were told there was no more cash and never would be again. Would you panic? Naturally, it is possible to cope without cash today, but there are always people who prefer to use it. It is therefore important that the central bank has sufficient cash reserves at all times, because this forms part of the functioning of the entire economy.

Secondly, the manufacturing of cash is a lengthy process – unexpected orders cannot be executed quickly. If cash production is too small, there is a risk of a lack of cash.

Thirdly, cash manufacturing is associated with expenses. We all monitor our expenses and try to keep them at a reasonable level. This is also done by Eesti Pank, which must take into account that if too much cash is manufactured, it must be deposited – which entails additional expenses.