[EN] BC reused banknotes before launching the R$200 note.

  

     With the COVID-19 pandemic and the payment of emergency aid, which increased the demand for cash, the Central Bank of Brazil (BC) decided to recirculate banknotes in 2020 that were initially set to be destroyed due to wear and tear. The goal was to minimize the impact of a potential shortage of banknotes in circulation. However, the measure did not fully resolve the issue, and in July of that same year, the BC announced the creation of the R$200 banknote.

     These details are found in Voto 174/2020-BCB, obtained via the Access to Information Law (LAI) by Valor. The document outlines the proposal for the creation of the new banknote and provides an analysis of the demand for cash at the time, as well as various reasons for the development of the R$200 note. While some of this information was made public by the BC when the banknote was launched, other details—such as the recirculation of notes that were initially set to be destroyed—were not highlighted. The document was classified as “reserved” by the BC for two years.

     The Information Classification Term, which explains the decision for secrecy, states that the BC kept the document classified as reserved to ensure that the communication strategy "would not be influenced by internal elements of the decision-making process that, if taken out of context, could weaken the coherence of the message conveyed." The BC also argued that the document contained sensitive information related to monitoring the cash supply. Some sections of the vote remain restricted.

     When contacted, the BC stated that it selected higher-value and less-worn banknotes to be recirculated. Approximately 90 million notes were returned to circulation based on these criteria and were later gradually removed as stock levels permitted.

     The document also lists several factors that contributed to the shortage of banknotes in circulation. In addition to the high demand generated by emergency aid payments during the pandemic and the so-called "hoarding" of cash (the accumulation of money reserves), which had already been noted by the monetary authority at the time, the document also highlights budget constraints dating back to 2014 as a contributing factor. This issue was not mentioned during the launch of the R$200 banknote.

     "The budget constraints for cash supply expenses, observed since 2014, did not allow for the formation of reserves for more severely adverse scenarios, despite various initiatives taken in recent years to increase the ratio between the quantity acquired and the quantity deemed adequate for maintaining the cash supply," the document states.

     In 2019, for example, only 52% of the necessary banknotes were acquired (1.7 billion out of 3.4 billion). The lowest percentage was in 2014 when only 29% (1 billion out of 3.5 billion) of the necessary banknotes were acquired. These figures are included in Voto 174/2020-BCB.

     Marcel Mascarenhas, a partner at Warde Advogados and former deputy attorney general of the Central Bank, who was with the institution at the time of the banknote's creation, believes that the BC took the fastest and most necessary measures to meet the demand for cash. "In an ideal scenario, banknotes would be replaced once they reached a certain level of wear. However, when there are budgetary restrictions preventing the production of a sufficient number of new banknotes, tolerance for worn notes increases, allowing a larger volume of money to remain in circulation," he said.

     Voto 174/2020-BCB also provides a timeline of the BC's actions to prevent a potential cash shortage in the first year of the pandemic. According to the document, there was a "disruption" in the usual flow of payments and receipts due to the large influx of physical cash resulting from aid payments, as well as the hoarding of banknotes.

     The BC then lists several measures taken, in addition to the recirculation of banknotes, to mitigate the impact of high demand. These included accelerating the production and delivery of notes by the Brazilian Mint. The BC also considered ordering banknotes from abroad but found that international printing facilities were already operating at full capacity.

     As a result, the decision to develop the new banknote was considered an "emergency measure to meet cash supply needs." The BC determined that a preliminary design for the note already existed, that the Brazilian Mint had the capacity to produce it, and that it could be contracted within an appropriate timeframe.

     In addition to Voto 174/2020-BCB, the Central Bank also produced Voto 211/2020-BCB, requesting additional budget allocations to finance the banknotes, and Technical Note 329/2020-BCB. The latter document remains classified as reserved and is expected to be released to the public in August of this year.

     Nearly four years after the R$200 banknotes first entered circulation, about one-third of the 450 million printed are still in use. According to BC data, there are currently 136.7 million notes in circulation. Mariana Chaimovich, a legal advisor at the Institute for Strategic Studies on Technology and Cash Supply (ITCN), emphasizes that despite the growth of digital payments, Brazil is a vast country with diverse economic realities. Responding to criticisms of the BC’s decision to create the R$200 note, Chaimovich stresses the importance of ensuring public access to cash.

     "Claiming now that the R$200 banknote was unnecessary ignores the undeniable needs of an exceptional historical moment—the pandemic. Even today, the total value of R$200 banknotes in circulation (approximately R$27 billion) is only surpassed by the R$100 notes (R$185 billion) and R$50 notes (R$86 billion). Therefore, even though a larger quantity was initially planned for issuance, the process has been gradual to avoid flooding the market with these banknotes, reflecting a careful analysis of society’s needs at a specific moment in history," she said.

     The BC stated that the R$200 banknote enters circulation gradually and in response to public demand, "just like any other new denomination." According to the institution, the current cash supply budget is sufficient to adequately meet the country’s needs.

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To cite this text:

Shinohara, BC reused banknotes before launching the R$200 note. Valor Econômico – Globo, January 2024 Available at: <https://www.numismaticos.com.br/2024/01/en-bc-reused-banknotes-before-launching.html (https://valor.globo.com/financas/noticia/2024/01/25/bc-reaproveitou-cedulas-antes-de-lancar-nota-de-r-200.ghtml)>.