A spike in the number of counterfeit banknotes circulating in Australia has prompted the Reserve Bank to design new notes which have tougher security features.

There are 1.3 billion bank notes in circulation in Australia worth a total of $61 billion.

A parliamentary committee in Sydney has been told that the number of counterfeit notes detected last year was 18,000, up from about 8,500 four years ago.

The rate is relatively low by international standards, but Michele Bullock, the RBA's assistant governor for currency, said there was concern about the upward trend.

"We've noticed, I think, that there's a little bit more sophistication of the counterfeiting," she told the hearing.

"Mostly what we see in counterfeits is paper. People cut out a little window and they stick some Contact on it, so it's a very, very crude sort of counterfeiting which should in theory be very easy to pick up."

But Ms Bullock said criminal gangs blamed for printing and circulating the notes were innovating.

"Polymer itself, the plastic banknotes, have in fact been very secure," she said.

"We have noticed in the last few years though that people are getting better.

"Technology is getting better, it's getting cheaper, people are able to print banknotes, more onto plastic substrates, and we've had an example about three, four years ago where we did have a counterfeiting attack in Australia and it was on plastic substrate, so that was quite important."

Some things change, others stay the same

In response, the Reserve Bank is designing notes which Ms Bullock said would look different.

"The people on the banknotes will be the same, the colour palette, if you like, will be the same. The sizes will be the same," she said.

"But they will look different because there will be now security features there and they'll look different than the current ones.

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"The two series will co-circulate, so sometimes you'll get an old series, sometimes you'll get a new one, but gradually what will happen is that we will withdraw the old series and the new series will take over.

"Although we're not being alarmist, and we don't think there's a big problem here, it is creeping up and that's really the reason why we are looking at increasing the security on our banknotes."

As part of its campaign to crack down on counterfeiting, the RBA has asked Attorney-General George Brandis for new powers to assist investigations by the Australian Federal Police.

The changes would see the central bank take over some of the AFP's administrative roles in investigations.

Keith Drayton, deputy head of the RBA's Note Issue Department, told the committee the change would free up police resources by removing a somewhat bizarre protocol.

"We still have this situation where, under the legislation, all the counterfeits have to go to the AFP, which essentially means that the AFP have to act as a post-box emptier," Mr Drayton said.

"So the counterfeits go to a post-box, the AFP have to empty it and deliver to us, which detracts them from their investigative obligations."