Dr James Wojtyk has over 25 years of extensive experience in scientific research, technology innovation, and strategic leadership across Canadian academic, government, and industrial sectors. For three years Dr Wojtyk headed up Research and Development in Currency at the Bank of Canada, integrating new technologies into banknotes, advising on counterfeit threats and fostering international collaborations - all to drive innovation and security.

Podcast Transcript

The following transcript has been edited for clarity and length.

Eve De Clerk: Hello and welcome to the latest in the series of the Smithers podcast. Today I’m joined by James Wojtyk, who has recently written our Lifecycle of Banknotes report. Hi James, how are you today?

James Wojtyk: I’m great Eve. How are you?

Eve De Clerk: Yeah, I’m very well thank you. So let’s jump straight into this really interesting topic. Can you tell us why it’s so interesting?

James Wojtyk: In the next five years, people in the industry, central bankers, etc., think that there’s going to be a bit of a disruption in the industry. And when I say disruption, that’s not necessarily a negative connotation. It’s actually very positive. It’s generally going to be related to the technologies that the banknote industry is going to adopt, and all the different technologies like AI etc, are going to impact and enhance the banknote industry. From design substrate security features, production, post-production, circulation distribution and even end of life of a bank note. So there are a lot of really interesting changes coming to the bank note industry and I think in the report that we’ve just written, they’re really outlined there and there’s a really interesting road map as well.

Key Trends in Banknotes

Eve De Clerk: So you touched on technology quickly there. What other key trends are we seeing in terms of this market at the moment?

James Wojtyk: The focus of the whole report is how technology is going to change the industry. We definitely see new and improved security features because it’s that arms race with the counterfeiters: they do one thing and then the central bank has to do another to design better security features.

But from a technology perspective you’re seeing greater emphasis on sustainability in amongst the industry. A really big one is of course artificial intelligence – everyone’s using it obviously, ChatGPT, etc. But when I look at all the different technologies that I report on in the document I think artificial intelligence is the one that touches on every single aspect – from design substrate, security features, because it’s just so ubiquitous right now and the potential is still quite untapped.

That comes to one of the other issues with the bank note industry – a lot of people generally say that the bank industry is not really conducive to change, that it is very conservative. And yet all the people that I spoke to – and even with my time at the Bank of Canada – everyone is pushing the envelope and trying to adapt these technologies as quickly as possible because it’s going to make it better, optimum, cost savings as well. So, there are a number of very interesting benefits there to adopt these new technologies.

The Impact of Sustainability on the Banknote Industry

Eve De Clerk: And you mentioned sustainability briefly. Are there currently any sort of drivers that are affecting sustainability in terms of the life cycle of banknotes?

James Wojtyk: Well, I think one of the things about sustainability is, when you look at different substrates, for example, countries switching from paper to polymer. There’s actually been a couple countries that actually switched back to paper as well. Interesting. There’s an interesting map in the report, so you can look at it there. But for the most part, you know, sustainability is in every single aspect of the bank note industry, it is important.

And that sort of feeds in once again to net zero 2050, climate action, climate change. Everyone wants to be a lot more environmentally responsible and it’s not just greenwashing because the central banks and the suppliers and the print works etc., they are reducing their emissions. Companies like G&D and CCL – they’re looking at innovative ways of recycling their product. I know G&D is coming up with a fibre bank note extractor that’s going to allow recycling of actual cotton fibres. So the technology that they’re investing in and innovating in is something that’s really going to drive the market from cradle to grave. 

That’s one thing about sustainability and then the other thing is that banknotes are just lasting longer and unfortunately––I must say unfortunately––it’s just the reality, because cash usage is going down. And because cash usage is going down, bank notes are lasting longer and so there’s a lot less product turnover. These are the things that the industry also has to grapple with.

The Role of Cash

Eve De Clerk: Absolutely. You mentioned there that cash usage is going down and that cashless payments have gained traction in more recent years. What areas have reinforced the role of cash in society?

James Wojtyk: Yeah, that’s a really interesting question because everyone’s always saying the doom and gloom of cash and it’s going to go down to zero etc. Well, you see a lot of countries all over the world mandating and putting out regulations that their citizens have to have access to cash.

Things that really bring it to the forefront are when there’s a disaster or some sort of crisis. The recent power outage in Spain. And in Canada a couple years ago, half of our country went down because one of our telos flipped the wrong switch and people realized that the only option at that point for 8 or 12 hours is cash. People are really starting to take more advantage of that. Cash is value.

Economic uncertainty is also another big one and everyone’s reading the news about tariffs, etc. In times of economic uncertainty, people do hoard cash a little bit more, because that is something that actually is of value. Cash usage is going down – all the projected forecasts are there, there’s no denying it, but it’s going to reach a steady state. Countries like Sweden and England have mandated now that people have to have the access to cash, in Canada as well. While we’re closing down some ATMs, the Bank of Canada has mandated that every citizen has access to cash. So, very, very important.

Complementary Technologies and the Threat of Counterfeits

Eve De Clerk: Absolutely. And what’s the biggest thing or the biggest change that we’re going to see in the life cycle of banknotes in the next five years or so?

James Wojtyk: Well, you know, that is an interesting question. And I think I got a different answer from everyone I interviewed for this report, but one of the things that does change very quickly is of course cash usage. We’re going to see that change and that can change on pretty much the drop of a dime really – to use a coin, as opposed to a bank note analogy.

But the other thing that you’re going to see too, is a bit of an emergence in terms of how central banks and the whole bank industry deals with the digital complementary technologies – CBDCs for example, and even the SAS payment systems and Apple Pay– and all they have to learn to integrate.

It’s an interesting concept – all the technologies that are outlined in the report, they’re all complementary; they’re not going to replace banknotes at large, but they’re going to complement each other. CBDCs are going to complement physical banknotes. When I look at the potentially new types of banknotes - what they call the physical digital interface or ‘phygital’ – these are going to complement the existing physical banknotes, they’re not going replace them. Not by a long shot. And that’s because a) people are too familiar with it and b) the industry would really have to turn itself upside down to just completely switch over.

And the other thing that’s also not going to change are the security threats from counterfeits. That’s the thing that inherently central banks have to be on the outlook for. It’s interesting to compare counterfeit value of physical bank notes to credit card fraud, for example – the credit card fraud amount is much larger. But for counterfeiting of banknotes it really is a national security threat because as soon as the society and citizens start losing confidence in their currency, it really becomes quite problematic for the central bank and for the functioning government of that country.

Mergers and Acquisitions

Eve De Clerk: I wonder if you could tell us a little bit about the M&As happening in this industry at the moment.

James Wojtyk: When I was at the Bank of Canada for the last three years, we really did see a bit of a marked transition in terms of having a bunch of different individual entities designing substrate, security features – this has now become more of a consolidation trend in the industry.

Crane, for example, has gone on a bit of a buying spree; Authentix as well. And so in many respects people say consolidation is not necessarily good for the industry but I think it’s going to be very beneficial, because you’re going to have a completely vertically integrated design and flowchain and I think that’s very important from a capability perspective.

Secondly, people who are more interested in maybe switching or changing a security feature or switching substrates, there’s a one-stop shop – there will be one place to go, as opposed to five or 10 different options. So that merger and acquisition activity is actually extremely important and going to be quite beneficial to the bank note industry.

Eve De Clerk: If we just jump back to AI quickly, you mentioned how it can help the industry. What are the ways that it’s going to hinder this market?

James Wojtyk: One of the things that everyone is talking about is how the counterfeiters could use artificial intelligence. I think that’s one thing that no one in the industry has really explored quite yet. AI is like that double-sided coin where on the one side it’s a great technology to use, and on the flip side it can be abused as well. And so, artificial intelligence, when we look at counterfeits, it’s something that central banks and all the suppliers are going to have to stay one step ahead of. No one really knows how it’s going to be used nefariously against central banks.