Banco de Portugal –Let’s give banknotes a second life

BdP is committed to becoming carbon neutral by 2050 and, in recent years, has promoted several initiatives aimed at improving the efficiency of the cash cycle, with a particular focus on identifying alternative solutions for the treatment of shredded unfit banknotes.

In 2023, BdP launched a project to identify viable alternatives to incineration. The project follows two parallel lines of action: collaboration with the business sector and collaboration with the scientific and technological academia.

Within the first line of action, we have already successfully tested the production of gifts and urban furniture. Under assessment are the replacement of an additive used in asphalt production and the biological treatment of banknote waste for the production of compost and biogas.

A parallel and complementary initiative was launched at the end of 2024 as part of BdP’s strategic plan to bring civil society closer to the central bank and its sustainability agenda, fostering greater mutual understanding. It included the contest “Vamos dar uma segunda vida às notas” (Let’s give banknotes a second life). Three proposals were selected to advance to the prototyping phase, funded by BdP. Each project applies innovative techniques to transform shredded banknotes into value‑added products, including advanced water and air purification filters, bioplastics for bank cards and luminescent materials for application in security features.

We believe that by working together and by fostering measurable and lasting impact, we can help build a more sustainable future for the cash cycle – benefiting not only our institution, but also society as a whole!

The program has been implemented in Portugal.

A key innovative and distinctive aspect of this project is BdP’s decision to engage, for the first time, both the business sector and the scientific and technological academia in the search for sustainable alternatives to incineration. This dual‑collaboration approach is unprecedented in our organisation and reflects a shift towards open innovation, cross‑sector partnerships, and knowledge sharing.

To ensure that the most promising and impactful ideas were selected for development, BdP adopted a set of criteria that prioritised:

• Originality: solutions based on new ideas, methods or technologies.
• Eco‑friendliness: processes that reduce water and energy consumption and eliminate the need for additional chemical treatments.
• Zero‑waste potential: approaches that maximise recycling and reuse to avoid any residual waste.
• High processing capacity: the ability to efficiently handle large volumes of banknote waste.
• Scalability: a model easily replicable across different locations and production sites.
• Ease of integration: feasibility of implementation with no—or minimal—changes to existing BdP internal operations and without increasing operational costs.

By combining industrial expertise with academic research and applying these rigorous selection criteria, the project broadens the range of viable solutions and accelerates the discovery of environmentally sound, scalable, and operationally compatible applications for banknote waste.

Currently, banknotes that no longer meet the quality requirements to remain in circulation are shredded, compacted into briquettes, and sent for incineration due to their excellent combustion properties. While this method is considered environmentally acceptable—since it enables energy recovery—BdP believes it is essential to explore more environmentally friendly alternatives, with recycling being the preferred option in accordance with the hierarchy set out in the Waste Directive 2008/98/EC.

Therefore, Banco de Portugal is committed to identifying alternative solutions. We aim to accelerate the banknote industry’s transition to a circular economy, promote a more competitive market for waste treatment, anticipate future regulatory developments and fulfil what we regard as our institutional responsibility.

The challenge lies in identifying a solution that minimises the environmental impact of treating banknote waste while remaining financially viable and fully compatible with our internal banknote destruction procedures, requiring no—or only minimal—operational adjustments.

To rise to this challenge, BdP launched a dedicated project to identify viable alternatives to incineration. The initiative moves forward on two fronts: close collaboration with the business sector and strategic engagement with the scientific and technological academia.

Of all the euro lifecycle stages, “End of life” is the only one to date that shows a beneficial – if modest – overall contribution to the environment, i.e., a negative environmental footprint. It is also the stage in which the central bank’s intervention is most direct and operationally significant. In view of this, any alternative processes to dispose of euro banknotes should only be considered if they outperform the current benefits of incineration.

The project is designed to significantly reduce the environmental footprint associated with the treatment of unfit banknotes by replacing incineration with alternatives that prioritise recycling, resource recovery and circular‑economy principles.

All technically validated and operationally compatible solutions will be assessed using the Product Environmental Footprint (PEF) methodology established by the European Commission and compared with the current method. This ensures that each alternative is evaluated across a wide range of environmental impact categories and measured against an established baseline.

Although we do not yet have quantitative results to share, the preliminary qualitative analysis indicates several strong environmental benefits:

• Reduction greenhouse gas emissions – Recycling‑based solutions avoid the combustion stage inherent to incineration, eliminating emissions associated with thermal treatment and reducing the overall carbon footprint of the cash cycle.
• Increase material circularity – Each recycling solution enables the transformation of banknote waste into a secondary raw material, supporting the EU’s circular‑economy objectives and reducing dependence on virgin resources.
• Elimination or reduction of hazardous outputs – Avoids the formation of combustion by‑products, reduces the need for chemical stabilisers and minimises or eliminate ash waste.

Like most central banks and financial supervisors, the Banco de Portugal integrates environmental, social, and corporate governance (ESG) sustainability factors into both its policy framework and its internal management practices.

In recent years, environmental and climate‑related concerns have taken on increasing relevance, as they pose significant risks to the financial system and influence the conduct of monetary policy. These challenges reinforce the importance of adopting sustainable practices across all areas of BdP activity.

BdP overall approach to sustainability is outlined in the Action for Sustainability document, which provides a comprehensive view of its strategic position and sets out the guidelines and priorities that will guide its actions in the coming years. These principles are aligned with the Strategic Plan for 2021–25 and, more recently, with the Strategic Plan 2026–2030.

BdP is committed to becoming carbon neutral by 2050 and has already implemented several measures to reuse and recycle materials, minimise waste, convert resources more efficiently, and increase the use of clean energy.

Within this broader sustainability context, the cash cycle has also emerged as a priority area. In this domain, our objective is to improve the efficiency and environmental impact of cash‑related processes. We believe it is our institutional responsibility to support and promote the transition of the banknote industry towards a circular economy.

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