Has Globalisation Had its Day?

Globalisation is the result of the ability to move and communicate easily with others leading eventually to global cultural, political and economic integration.

In an economic sense, globalisation is characterised by consolidation, standardisation, interoperability, outsourcing and off-shoring (particular to lower cost countries), complex and extended supply chains, and free movement (of goods and people), all of which have lowered costs, increased demand and generated economic growth around the world.

Globalisation has been seen in general as a ‘good thing’ and its march over the last few decades has appeared unstoppable. Until the arrival of COVID-19, that is.

The speed with which the virus has taken hold around the world reflects the highly connected world we live in, of which globalisation is a key part. Few countries were prepared for this rapid spread of the virus – and normal trade in key supplies (such as PPE and ventilators) was severely disrupted, partly because of logistical difficulties but also because countries overrode contracts to secure these supplies for their own citizens.

This was a harbinger of the vaccine nationalism which has now emerged, the long-term consequences of which will affect not just public health and efforts to defeat the pandemic, but also research, investment in manufacturing capability and, perhaps, the ability of countries to work collaboratively on universal and cost-effective remedies.

And then there is climate change. Put together the challenges thrown up by the pandemic with concerns about emissions and pollution resulting from transporting raw materials, products and people around the world, and some predict that globalisation will be thrown into reverse.

Will this affect the cash community?

Currency production is highly specialised, and the required resources and technical skills are both limited and widely spread. The effects of globalisation can be seen in the exchange and transfer of raw materials, finished products and technical expertise. The supply chain is truly international. In some cases, so are the banknotes themselves (eg. the US dollar and the euro, which are used 60% and 30% respectively outside their borders).

We predicted several years ago, long before people were concerned about the environment and clearly without any foreknowledge of the pandemic, that the currency industry would follow the path to globalisation with consolidation and rationalisation of production, and that the focus of supply would pivot to Asia.

We were pretty much wrong on both counts. Neither has happened to any great extent and perhaps, as a result of recent events, they never will.

The majority of the world’s banknotes (c. 85%) are still produced in-country by state printers, even if the materials on which they rely (inks, substrates etc) aren’t.

The only banknote printing works that have closed down in recent years are those of Denmark, Belgium and Ireland. A handful of the larger and commercially-minded producers in Asia have increased exports, but India’s programme for self-sufficiency is largely for domestic consumption, and excess capacity in China, which is fully self-sufficient, has yet to be released onto the market.

Plans for new printworks in various countries have fallen by the wayside (eg. Malaysia) or are yet to materialise (eg. Ethiopia, Nepal). The only new printer to emerge in the last decade (as distinct from organisations building additional printworks or upgrading existing facilities) is Oumolat in the UAE.

The story is much the same in the minting community. The Danish and Belgian mints have closed, and a handful of others have been privatised, but that is about it.

One of the arguments for domestic production of currency is that banknotes and coins are national assets with security implications that can be best protected by keeping manufacture in-country. Another is that it retains the value of the production and prevents currency outflows. Another still is the development of skills and expertise which can then be applied to other industries, or even to develop exports.

There is no doubt that the security of banknotes and coins can be maintained irrespective of location of production. As for security of supply, the industry has worked successfully over the last year to keep the presses running and customers supplied around the world, despite the logistical challenges.

Whether globalisation will be thrown into reverse with a rise in post-COVID economic nationalism and concerns over climate change remains to be seen. Some suppliers have already created regional hubs and/or joint ventures in their markets to boost local skills and get closer to their customers. This may, of course, continue. But in our industry, given the size and nature of the market, the specific and relatively rare skills involved, combined with an excellent track record in global supply, the advantages of globalisation are less compelling.

The sustainability of banknote and coin production, however, is another matter. The industry has dealt admirably with the consequences of the pandemic. It now needs to apply the same creativity and flexibility to reducing the environmental impact of its products.