What is a Replacement Banknote?

The issuing of banknotes is a very controlled process. Every banknote is accounted for. Every serial number is accounted for. And for most printers, every watermark is accounted for. But what happens when errors occur during printing? Two things happen. One – error notes and even sheets are destroyed. Second, if the banknote is marked with a serial number, it is replaced and put into circulation- but identified with a star or a ‘Z’ prefix.

The Printing Process

To understand why central bankers and printers take such care, one needs to understand how the materials are controlled and why. The why is the easy part. Everything from the banknote paper to partially printed banknotes are the easiest way for a counterfeiter to produce and pass unauthorized banknotes. Central banks and paper producers take great efforts to put security features into the paper. These features are often the hardest to replicate. The control of the paper and the accounting for every scrap becomes very important to the overall security of the banknote. 

Material control starts with the raw materials and goes throughout the printing and shipping steps. Most banknotes are printed on sheet fed machines. Banknote paper therefore arrives at the printer in sheets, not rolls. The sheets come already with threads, watermarks, and sometimes other pre-applied security features. Sheets go through several printing steps beginning with offset then intaglio and through several more steps. During or after each step the sheets are inspected for defects. Errors should be removed during these inspections. Therefore, finding a note in circulation or the collector market an error in the offset printing is incredibly rare. 

Replacement Identifiers

Applying the serial number is usually the last printing step. Serialization is still done at most printers with old-style mechanical tumblers in large, complex numbering box systems. If a serial number is used on an defective note during printing, it is used and cannot be re-used. That note is sequestered and must be replaced by a genuine and perfect note. Some printers create a set of ‘Z’ series notes with the replacement serial numbers, while the USA has used stars to identify replacement notes. 

These notes are relatively rare and central banks don’t seem to put out statistics on their frequency of errors and replacements. A reasonable estimate is 1 – 4 notes per 100,000 notes. This rarity makes the replacement notes interesting and valuable to collectors.