Remarks before the Parliamentary Standing Committee on Public Works

Frank Campbell
Assistant Governor (Corporate Services)

Craigieburn - 17 February 2014

Chair
Members of the Committee

Thank you for the opportunity to make some remarks about the project we propose. I am accompanied by key people on our project team, both here at the table and behind should we need to draw on their expertise.

As members are aware, the Reserve Bank has the responsibility – from its establishing legislation – to print, issue and cancel Australia's banknotes. The facility that we ask you to consider flows directly from this responsibility. The project is to build a specialised facility for the Reserve Bank to store, distribute, and process banknotes on land that it owns at Craigieburn. The project has a working name of ‘The National Banknote Site’. The purpose of the facility is to support the ultimate objective of the Bank's note issue obligations, which is to sustain public confidence.

The project is driven by three considerations:

firstly, the impact on banknote operations of the major banknote project that is underway to upgrade the security features of Australia's banknotes
secondly, the need to consider the capacity required to carry out banknote operations in the medium and long term, and
thirdly, to provide a platform that will permit operations for the note issue to be carried out with appropriate security, efficiently and cost effectively.

The Next Generation Banknote project, announced in September 2012, seeks, in plain words, to keep Australia's banknotes ahead of counterfeiters. While Australia's counterfeiting rates remain low by international standards, the longer a series of banknotes remains in circulation, the higher the threat of counterfeiting becomes. With the current series of banknotes approaching 20 years of age – and the print technology available to criminals being much more sophisticated than when these banknotes were first issued – the Bank has commenced its Next Generation Banknotes program.

Issuing a new series of banknotes is, among other things, a logistical exercise on an industrial scale. Once designed, banknotes first have to be printed and stored securely. Then, at the same time as a new series is issued, the old banknotes have to be withdrawn from circulation and destroyed. The requirements for this changeover far exceed current capacity to store, distribute, process and ultimately destroy banknotes. At the peak of the new issue, the rate at which banknotes will be issued and withdrawn, will be four times current rates. By 2017, existing strongrooms will be far too small, and inefficient, to meet the demands placed upon them. New facilities are therefore required.

The size of the building proposed is determined by the scale of the heightened processing and distribution activities mentioned and, to an important extent, the size of the strongroom needed for storage. Much more storage capacity is required both for the new series and to support growth in banknotes on issue in the longer term.

The proposed facility will have good staff amenity and workplace design that will be a marked improvement on current facilities. Current staff have been consulted on these aspects.

The choice of this site and the design followed a conventional process. Once the need for the new series of banknotes was identified, the Bank evaluated a number of options for storage and distribution. It became clear that using the available land at the Bank's existing property at Craigieburn would have a number of advantages. A facility close to the note printing works would reduce the risks and costs of banknote transportation, help retain existing staff, would be within an appropriate industrial zone, and would have good access to main roads and the airport. In 2013, we undertook a master planning exercise for the Craigieburn site, in conjunction with our project managers. Of three options evaluated, the site proposed, which you inspected earlier today, was favoured on a combination of cost and risk considerations. Importantly, the option chosen is risk‑reducing for the print operation compared to the other options considered, during both the construction and operational phases.

The facility proposed is expected to provide capacity for business-as-usual operations for at least 25 years. This takes into account that the holding point we currently operate in the Melbourne CBD will be closed, with a significant reduction in costs. Space is available for storage and processing capacity to be extended at the new site in the medium term, if necessary. I suppose it might be argued that, over the medium term, cash could become increasingly redundant and less storage, not more, will be required. A response to that would be, despite successive waves of technological change in the payments system over decades, the number of banknotes outstanding continues to grow at over 5 per cent a year, roughly the rate of growth in nominal GDP.

The limit of cost for the construction project is $72 million, based on the 100% Schematic Design documentation. This includes the building structure and all central plant, all external works including roadways, landscaping, perimeter security, professional fees, contingencies and Reserve Bank staffing costs.

We have undertaken considerable consultation within the community, with staff, with local government and with relevant authorities including the police and Country Fire Authority. The response from community and staff has been favourable. If I may, Chair, I seek your approval to table a letter of endorsement for the proposal from the Hume City Council.

A facility of this kind is unique in Australia and it is difficult to benchmark the proposal against other such facilities. The Bank, however, has undertaken a study of similar functions in other major central banks. Better practice among these central banks involves greater automation than is apparent in our current arrangements, with similarly strong security regimes to ours. Applying a wider lens, our assessment is that this facility would be a platform for note issue functions that would place us among the group of central banks with ‘best practice’ in these activities.

Thank you for considering the proposal. As the timetable for selecting a head contractor and delivering the project is rather tight, I respectfully ask, Chair, that Members consider approving design and contract documentation to proceed concurrently with your deliberation of the proposal. If I may, I would like to table a letter to this effect. The timetable, as I have explained, is driven by the program that has the ultimate aim of maintaining confidence in the integrity of Australia's banknotes.