Abstract
The minimal total cost replenishing policy for legal banknotes by the Bank of Israel (a ‘Federal’ Issuing Bank) was determined in three stages: (a) the market demand for banknotes of different denominations for a planning horizon of 10 years was evaluated using regression analysis; (b) the periodic supply of the banknotes to the market was estimated from the incremental market demand and the need to replace worn out banknotes; and (c) a total cost discrete Dynamic Programming model was constructed to find the optimal ordering quantities of banknotes, under the constraints of maximal storage and maximal order size capacities.
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