The State Bank of Pakistan (SBP) is likely to abolish protective varnish coating on existing higher denomination banknotes i.e. Rs 500, 1000 and 5000 for two months due to fears of breakdown of the machine, sources close to Advisor Finance told Business Recorder.

Under the mandate given to it through section 24 of SBP Act, 1956, the SBP is currently issuing banknotes of Rs 10, 20, 50, 100, 500, 1000 and 5000 denominations.

SBP in collaboration with Pakistan Security Printing Corporation(PSPC), Security Papers Limited (SPL) and SICPA Inks Pakistan, conducted a comprehensive exercise to explore various options for enhancing the security features of banknotes of higher denominations i.e. Rs 500, 1000 and 5000.

Based on analysis of various security features being used globally, conducted during that exercise, SBP with the approval of the federal government introduced following new features for strengthening and enhancing of the higher denomination banknotes;(i) increase in the size of Optical Variable Ink (OVI) design by 10 per cent;(ii) protective varnishing using Sicpaprotect;(iii) application of Sicpatalk (CBA)(R) infrared ink and ;(iv) application of coloured magnetic ink Neomag (R) as enhanced machine-readable feature.

The sources said, banknotes with enhanced security features, went into circulation in 2017. The rationale for introducing protective varnishing through Sicpaprotect(R) was to increase the life and longevity of banknotes. PSPC is using just once machine for varnishing which has hitherto been sufficient to meet SBP indent. However, the recent outbreak of Covid-19 has highlighted a new risk i.e. breakdown of the machine and non-availability of spare parts could severely disrupt the production of the banknotes with this specific security features.

The varnish security features only enhance the life of the banknote as confirmed by the PSPC Lab. Thus doing away with this feature will adversely impact the overall integrity of banknotes and the life of banknotes may become shorter. Therefore, in prevailing situation, reliance on single machine may be a more risky proposition as compared to the risk of doing away with varnishing of banknotes for a temporary period.

The sources said, on ground position was placed before the SBP's Board in its meeting held on March 26, 2020. The SBP Board recommended temporary suspension of the varnishing of higher denomination banknotes i.e. 500, 1000 and 5000 for a period of two months with the approval of the federal government under section 27 of the SBP Act, 1956.

As per section 27 of SBP Act, 1956, the design, form and material of banknotes is approved by the federal government.

The sources said, Finance Division has endorsed the recommendation of the SBP's Board and proposed that the use of protective varnishing Sicpaprotect(R) for higher denomination banknotes of Rs 500, 1000 and 5000 may temporarily be suspended for two months in terms of section 27 of SBP Act, 1956.