##notes produced in the asian region has risen by just 2 per cent compared with the average annual growth rate of around 5 per cent since the start of this decade. increasing growth in the value of production at the same time that growth in production volumes is slowing means, of course, that banknote prices are rising. put differently, central banks, as wholesalers in the banknote market, are paying proportionately higher prices for finished banknotes than they have in previous years. furthermore, the higher price is compensating printers and other input suppliers, as producers in the market, for generally slower growth in production orders. my observation is that growth in banknote prices reflects, in part, a demand by central banks for banknotes to be printed on more durable substrates and for banknotes to have more sophisticated security features to protect against counterfeit attack. this can be seen in the increasing take - up of technologies to improve the durability of banknotes, such as polymer and polymer - composite substrates, as well as varnishes as a protective banknote overcoat. it can also be seen in the increased use of added security features such as optically variable devices – that is, foils and features that change colour and shape as the banknote is tilted. many of these features come at premium prices compared with traditional inputs to banknote production. this is not a development unique to the asian market but is also evident in other regions, most notably europe and parts of north america. two strategies underlie the demand for more expensive substrates and security features, strategies that reinforce each other. the first is that, as the growth in production volumes declines, central banks are having their banknotes printed on more durable substrates in order to extend banknote life in circulation and, thereby, reduce medium - to long - term printing costs. industry estimates suggest that banknotes printed on polymer substrates, for example, cost twice as much to produce as paper banknotes, but last three to four times longer. this was certainly australia's experience in the late 1990s, the first few years of printing our banknotes on polymer. recent estimates suggest that the australian $ 5 banknote – our lowest denomination banknote – has a median life of around 3½ years while our largest circulation note by volume – the $ 50 – has a median life of around 10 years. the second strategy is that central banks are having more sophisticated security features added to protect banknotes partly because the technology available to counterfeiters is improving and

economy. we cannot know because that alternative scenario cannot be run, but as everyone knows, the board has on occasion in the recent past considered larger movements. so the idea of larger changes is not absurd. yet it is hardly as though interest rate changes were so small that no one noticed. there are few issues reported at more length than interest rates ; no one could say they were unaware of what was happening. beginning with the march 2005 rate change, moreover, the extent of coverage in the media has been far more intense than it had been prior to then, and far more intense than is the case in other comparable countries. we could debate the reasons for that, but they do not matter for present purposes. on every one of those occasions, there was no shortage of dramatic media coverage, and no shortage of predictions of serious consequences for indebted households, the economy and so on. if we were looking for announcement effects, surely they should have been at work through this period. my own view is that monetary policy is most effective when actions are seen to be consistent with the factual evidence available on the economy, a sensible assessment about future risks, and a framework that has a clear medium term objective for policy. apart from that, we have to accept that the likely effect of any one move of 25 or even 50 basis points is, while uncertain, probably only modest. it is the combination of changes, and more particularly the level reached, that will do most of the work. a second version of the “ ineffectiveness ” argument holds that ( 1 ) the price rises are coming from factors beyond the control of any australian policy, and particularly from abroad, from which it follows that ( 2 ) monetary policy cannot do anything about them. for some people, it follows that it is therefore ( 3 ) futile, and unnecessarily disruptive, to try. i have already addressed the question of whether all the price rises can be put down to a few special factors, obviously not under our control. the fact is that the price rises are broader than that. but even if all the initial impetus for higher prices comes from events abroad, we still have to decide how we will respond to that shock. in the case of energy prices, while the world price of oil in us dollars certainly is completely outside our control, it is the australian dollar price of oil that actually matters for the australian motorist. that price is lower at present than it might have been, because of the rise in