What the Reserve Bank does with $2 billion worth of damaged banknotes.

By Emily Stewart. 

This piece of a $20 note looks completely worthless. It is unlikely any shop or cafe would accept it, but don’t just throw it away — it is worth real money.

The Reserve Bank of Australia (RBA) will pay out the value — proportional to the size of the incomplete note. For example, the piece pictured above makes up almost a quarter of a note, so it is worth about $5.

Currently there are 1.3 billion notes — worth over $65 billion — in circulation in Australia.

They are all polymer, a type of plastic, developed by the Reserve Bank and the CSIRO in 1988.

Before then, notes were paper, and still are in other countries like England, which is swapping over to polymer technology this year.

But even plastic gets damaged, and the Reserve Bank wants only good quality bank notes in use to prevent counterfeiting.

Unfit banknotes might be incomplete or have staples, tears or holes.

Usually, commercial banks look for damaged notes and post them back to the Reserve Bank. In the last financial year, worn notes amounted to $2 billion.

Individuals can return damaged notes too, and the bank processed more than 15,000 claims worth $3.8 million last year.

But what does the bank do with $2 billion in useless banknotes?

The Reserve Bank said all old banknotes were recycled at a polymer recycling business.

The notes are first shredded into small confetti-like pieces, then passed through a special machine that melts them and makes them into pellets.

The pellets are then used as raw materials in households and industrial products like building components, plumbing fittings and compost bins.

But the Reserve Bank is keeping quiet on how much money they make from recycling the notes.

This post originally appeared on ABC News.

© 2015 Australian Broadcasting Corporation. All rights reserved. Read the ABC Disclaimer here.