Bank of England says to stick with animal-fat banknotes for now

LONDON (Reuters) - The Bank of England said on Wednesday it would keep using trace amounts of animal fat to make new plastic banknotes, as it would cost about 80 million pounds ($99 million) to switch back to paper and resolve vegetarians' and religious groups' concerns.

More than 130,000 people signed an online petition last year calling on the BoE to stop using animal products in banknotes, after it emerged that small amounts of tallow - which comes from cows and sheep - were used in its first plastic five pound note.

The central bank said it was testing alternatives such as palm or coconut oil, and plans to delay signing contracts for its first plastic 20 pound note, due in 2020, until it is clear whether a fully fat-free option is viable.

Some Hindu temples and vegetarian cafes have refused the new five pound note featuring World War Two leader Winston Churchill, which the BoE says is more durable and harder to fake.

The BoE said it would be too costly and increase the risk of counterfeiting and confusion if it withdrew existing notes or abandoned plans to launch a new plastic 10 pound note in September, which will be made in a similar way.

"The Bank has now concluded that it would be appropriate to keep the five pound polymer note in circulation and to issue the 10 pound note as planned," it said.

The central bank has spent 46 million pounds on printing the new five pound note, and 24 million pounds so far on getting new 10 pound notes ready. Printing replacement paper five pound notes - which are less durable - would cost eight to 10 million pounds.

The BoE also said it was reviewing processes linked to existing paper 20 pound and 50 pound notes, as the recycling methods used for waste paper involved trace amounts of animal products, although no residues were in the notes themselves.

If an alternative could not be found before it needed new paper for banknotes in July, the BoE said it would require that waste paper from the manufacture process was no longer recycled.

($1 = 0.8057 pounds)

(Reporting by David Milliken; Editing by Ken Ferris)