RDP 2019-12: Confidence in Australian Banknotes 1. Introduction

The Reserve Bank of Australia is responsible for the production and issuance of Australian banknotes, and works to ensure that the public has confidence in banknotes as a means of payment and a secure store of wealth. Understanding which factors influence the public's confidence in banknotes may help the Bank in achieving this aspect of its mandate. For instance, should the Bank's banknote education programs be more targeted towards certain demographic groups? Should the Bank focus on increasing the level of security features or on improving banknotes' usability? Should the Bank engage more actively with the media around reporting on counterfeits?

To answer these questions, this paper first explores how an individual's demographic characteristics, knowledge, and personal experiences shape their perception of counterfeit risk regarding Australian banknotes, and their confidence that counterfeits will be removed from circulation. The data come from a unique series of online banknotes surveys conducted for the Bank since 2010.

One interesting finding is that past experience of serious problems using banknotes significantly worsens both counterfeit risk perception and confidence in the system for removing counterfeits, regardless of personal experiences with counterfeits. This suggests that ensuring circulating banknotes are of high quality and are easy to use may be important in maintaining the public's confidence in our banknotes.

Unsurprisingly, we also find that past encounters with counterfeits increase an individual's perceived likelihood of being a counterfeit victim again, and more generally their perception of the overall prevalence of counterfeits. However, the effect on confidence in the system for removing counterfeits from circulation is modest in size and not statistically significant. Females, younger adults, and people with low income also tend to assess the counterfeit risk more negatively, and have less overall confidence in the system for removing counterfeits. Knowledge about banknote upgrades seems to have no effect on confidence (although it worsens perceptions around the existence of a counterfeiting problem), while the number of banknote security features known is positively correlated with higher confidence in the security of banknotes.

We then look at the effect of media coverage on counterfeits using state-level data. We find that more unique counterfeiting incidents being reported in the media is associated with more genuine banknotes being mistakenly submitted as suspected counterfeits, which we interpret as being indicative of heightened counterfeit risk perceptions. The effect, however, diminishes as the same set of counterfeiting incidents are picked up by more outlets.