Cryptoconvert: Why A 168-Year Old Banknote Printer Will Soon Be Churning Out Digital Drachmas For Central Banks

Cryptoconvert: Why A 168-Year Old Banknote Printer Will Soon Be Churning Out Digital Drachmas For Central Banks

When printing paper money is your core business, hyperinflation is your best friend and digital transactions are your worst enemy. How Germany’s Giesecke & Devrient has learned to thrive in a low inflation, electronic payments world.
I f ever there were a business with dark clouds on the horizon, it should be printing paper currency, otherwise known as banknotes. In the United States the production of bills falls upon the U.S. Treasury’s Bureau of Engraving and Printing, but for much of the rest of the world— from Armenia and Peru to Thailand and Swaziland, money is actually printed by a handful of companies, dominant among them, Munich, Germany’s Giesecke & Devrient.
Last month, the 168-year-old printing company made its first investment into blockchain, leading a $17 million Series A into Metaco, a Swiss startup providing custody services for bitcoin and stablecoins, a new kind of cryptocurrency powered by blockchain but backed by fiat currencies like the U.S. dollar. Perhaps even more important, it would be a perfect complement to new software it unveiled in 2019 called Filia that enables central banks to use distributed ledger technology to issue digital versions of their own currency.
Already six of G&D’s central bank clients are in negotiations about using Filia to create their own central bank digital currency (CBDC), as China prepares to become the first nation to launch its own blockchain-based currency. According to CEO Ralf Wintergerst, the money creation business is on the verge of a technological revolution that merges the best of the physical world with the best of the virtual.
Giesecke & Devrient is still deeply rooted in the paper money business, but you’d be hard-pressed to find a more enthusiastic advocate for digital payments. The pandemic brought on by Covid-19—and the inherent risk of handling paper money—has accelerated cashless trends in developed countries like the United States. Payment apps like Venmo, Zelle and Square’s Cash App have seen usage surge. Zelle, for example, saw its transaction volume swell by 63% in the first half of 2020 to over $133 billion.
“The existence of several payment means makes sense from a holistic standpoint,” says Wintergerst, 57, referring to the fact that the need for durable, counterfeit-proof paper currency remains strong despite the rise of electronic payments. “There must be some means of payment, which still works when a power plant is pulled, and where you can actually pay without leaving a trace.” In fact today, there is still $8 trillion in cash in circulation—an amount growing by 3% to 5% annually—and more than half of all payment transactions on the planet today occur using paper money.
In 2019, 46% of G&D’s $2.9 billion in revenues came from its currency technology division, which includes its banknote design and printing services, employs 4,800 people and works with 145 of the world’s 195 central banks. Though G&D’s expansion into digital services—including mobile security in the form of eSims used in Apple’s iPhones—is growing more rapidly, the division that includes paper money printing grew by 7% last year.
The German company is known for relentlessly innovating its banknotes. When Armenia was recently looking to replace its 1,000 to 100,000 denomination drams after 20 years, G&D used a new polyester and paper substrate so that the currency would be more than two to three times more durable than its old money. Also, beyond the standard watermarks and magnetic strips found on most paper notes, the company has begun offering so-called covert security features, including code printed on the paper with a laser that can only be read with sensors under infrared light and ultraviolet fluorescents printed directly into the visible artwork.
As of the end of 2018, only about 11% of the world’s banknotes are printed on private presses. G&D is the second-largest money printer, with 23% market share, right behind Britain’s troubled De La Rue, which has 27% share. After a series of problems, including unpaid debts from its deadbeat client Venezuela, the loss of its British passport contract to a French printer and a management shake-up, rival De La Rue recently suspended its dividend and announced that it might have trouble continuing as a going concern.
G &D was founded in Leipzig in 1852 by a pair of enterprising young artisans Hermann Giesecke, 21, and Alphonse Devrient, 31. That year the printers won their first important contract with the Bank of Weimar in the Grand Duchy of Saxe-Weimar-Eisenach to produce the 10-thaler banknote (the word “dollar” is derived from thaler). On one side of the note was the Goddess of Fortune of Saxe-Weimar-Eisenach nestled between 10s and surrounded on all sides by watermarks. The pair became known for their intricate designs. On either side of the goddess were guilloche engravings of fractal spirals carved with a lathe and impossible for any hand to replicate.
Over the years, G&D has played behind-the-scenes roles in monetary history. After World War I the company was one of the premier printers of the hyperinflating marks for the ill-fated Weimar Republic. In 1936 it printed tickets to the Berlin Olympic Games for Hitler’s Germany. Later it printed banknotes for the Franco regime in Spain. After the War, the Soviets expropriated most of G&D’s operations that had not been destroyed, but the son-in-law of the then chairman returned from a Russian prisoner of war camp and reformed the business in 1948 in Munich. Within a decade, the company was printing half of the Bundesbank’s banknotes and had expanded overseas. G&D was the printer to Zimbabwe’s corrupt Mugabe government dating back to the 1960s. In July 2008 the printer was forced by the German government to stop shipping banknotes to the Zimbabwe central bank, which saw inflation surpass one million percent annually.
Behind the scenes at a G&D factory modern-day currency production is a mix of some old-world techniques and cutting-edge technology. Today, G&D has more than 80 subsidiaries on five continents and state-of-the-art printing operations in Germany and in Malaysia. It designs secure, fraud-proof specialized banknotes and it even helps destroy them. While some central banks also own their own presses, G&D accepts special orders for high-demand denominations, custom-prints them with a wide range of security features, and ships them upon request. While orders for actual currency can be sporadic, G&D’s security devices for scanning money on behalf of governments, including the U.S. and casinos, provide recurring revenue. The hope is that if G&D can help smaller central banks develop their own digital currencies based on distributed ledger technology, as well as custody services through Metaco, it can create a recurring revenue model as the world goes digital.
In July 2017, as Bitcoin was on its way to $20,000 and the crypto ICO boom was nearing a frothy peak, G&D made its interest in digital currency known when it released a white paper called “Digital Money.” The 35-page report encouraged its central bank customers to embrace electronic alternatives to its own century-old banknote business: “A digital currency would be attractive to central banks as it would allow them to support citizens on the digitalization journey,” it said. G&D anticipated that many central banks would feel overwhelmed by the rapid rise of alternative digital currencies, including talk of Facebook’s Libra coin. They wanted to maintain control of their money supply but did not have the technical know-how or resources to compete in this arena.
Then last year, G&D revealed its first software product aimed at merging the two worlds: G&D Filia. In the Autumn edition of the Official Monetary and Financial Institutions Forum bulletin, G&D’s global head of currency technology, Christian Jüttner, positioned G&D Filia as a “complement to cash,” a platform-agnostic data file that could be minted by central banks and distributed via commercial banks or other financial institutions, for use on smartphones, smartwatches and other digital wallets. Though G&D is vague on the details of its new software, like bitcoin, its “currencies” will likely be created with an algorithm, only they will be controlled by each central bank, which will maintain the data file. This new type of currency wouldn’t require an account to use and would be open-source so that payment service providers could integrate their offerings directly into it.
In its pitch documents, G&D left open the possibility that the new breed of central bank digital currencies (CBDCs) could eliminate the need for commercial bank middlemen entirely, as the currency could be issued directly rather than through a depository institution. Citizens and others would thus hold an account directly with their nation’s central bank. Directly issued digital currencies would go a long way toward “banking the unbanked” because all that would be required for access would be a smartphone. Dispersing stimulus relief during a crisis, for example, could be as easy as sending an email.

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