1
Background and Overview

One necessary attribute of a modern nation is its ability to sustain an economic system among its global partners. A vital aspect of any financial system is the means of settling financial transactions quickly and fairly. This aspect of statehood directly touches every citizen. In this context, the soundness of a country’s financial system is critically important to its citizens.

THE EVOLUTION OF MONEY

The use of money to facilitate financial transactions evolved during the early history of humankind. To alleviate the awkward nature of barter, primitive forms of money, such as shells and teeth, came to be used. Well before the invention of coins, societies engaged in banking and finance which reached a level of sophistication that can be compared to today’s standards.

The physical representation of money over the centuries remained important. As the level of technology advanced, various cast metal forms were used for money because of the value of the metal, but also because the forms were difficult to make and to reproduce. Coins eventually became the common form of money that was minted, and the expansion of the Persian, Roman, and Ottoman empires broadened the use of coins. Banknotes were introduced originally in China, and later in Europe. Whereas gold and silver coins held intrinsic value, these paper notes represented value held elsewhere.1

The transformation from paper currency to electronic forms of money is clearly the latest chapter in the saga of the evolution of money in terms of both monetary value and number of transactions. Indeed, one of the major developments of the past two decades has been the rise of electronic funds transfer and digital currency. Global financial and banking networks now constitute one of the pillars on which the global economy rests; the value of the transactions handled by these networks dwarfs the cash economies of the world.2

Despite the pervasive use of electronic money, however, the modern world is still far from being a cashless society. Regardless of their lack of intrinsic value, banknotes have proven to be ubiquitous and highly popular for a number of reasons:

  • Access. Many people do not have credit cards or checking accounts and only use cash transactions.

1  

Counterfeiting of currency has existed in the United States from its birth. For some brief notes on the history of counterfeiting in the United States, see http://www.secretservice.gov/counterfeit.shtml. Accessed March 2006.

2  

National Research Council. 2005. Network Science. Washington, D.C.: The National Academies Press.



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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes 1 Background and Overview One necessary attribute of a modern nation is its ability to sustain an economic system among its global partners. A vital aspect of any financial system is the means of settling financial transactions quickly and fairly. This aspect of statehood directly touches every citizen. In this context, the soundness of a country’s financial system is critically important to its citizens. THE EVOLUTION OF MONEY The use of money to facilitate financial transactions evolved during the early history of humankind. To alleviate the awkward nature of barter, primitive forms of money, such as shells and teeth, came to be used. Well before the invention of coins, societies engaged in banking and finance which reached a level of sophistication that can be compared to today’s standards. The physical representation of money over the centuries remained important. As the level of technology advanced, various cast metal forms were used for money because of the value of the metal, but also because the forms were difficult to make and to reproduce. Coins eventually became the common form of money that was minted, and the expansion of the Persian, Roman, and Ottoman empires broadened the use of coins. Banknotes were introduced originally in China, and later in Europe. Whereas gold and silver coins held intrinsic value, these paper notes represented value held elsewhere.1 The transformation from paper currency to electronic forms of money is clearly the latest chapter in the saga of the evolution of money in terms of both monetary value and number of transactions. Indeed, one of the major developments of the past two decades has been the rise of electronic funds transfer and digital currency. Global financial and banking networks now constitute one of the pillars on which the global economy rests; the value of the transactions handled by these networks dwarfs the cash economies of the world.2 Despite the pervasive use of electronic money, however, the modern world is still far from being a cashless society. Regardless of their lack of intrinsic value, banknotes have proven to be ubiquitous and highly popular for a number of reasons: Access. Many people do not have credit cards or checking accounts and only use cash transactions. 1   Counterfeiting of currency has existed in the United States from its birth. For some brief notes on the history of counterfeiting in the United States, see http://www.secretservice.gov/counterfeit.shtml. Accessed March 2006. 2   National Research Council. 2005. Network Science. Washington, D.C.: The National Academies Press.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes Anonymity. Cash purchases preserve privacy and anonymity; many consider privacy one of the basic rights of a U.S. citizen. Convenience. Cash enables rapid, low-technology sales transactions. Such transactions can take place without access to machine authentication or even electricity. Acceptability. Banknotes can serve as a universally accepted medium of exchange. The U.S. banknote is well accepted throughout the world because people understand that it is backed by confidence in U.S. economic power; and, as a stable currency, it provides a measure of protection against inflation for people in countries with unstable currencies. THE INEVITABILITY OF COUNTERFEITING Counterfeiting has existed almost as long as there has been money. Counterfeit coins, for example, have always been an interesting aspect of history both in the study of numismatics and in the larger world of currency. Though counterfeiting is predominantly a criminal activity, it has also been used by a number of countries as a weapon of war. Today, counterfeiting is thought to be used by terrorists as one of the means to finance their operations. For many reasons then, nations have a strong obligation to protect the integrity of their banknotes against attempts to make illegal copies. The deterrence of counterfeiting is an important element of public policy that is required to maintain confidence in a nation’s currency both domestically and internationally. Because any original banknote can be duplicated, provided the materials, equipment, and expertise are accessible, responsible states endeavor to use materials and techniques that are not generally available and that present as many obstacles as possible to would-be counterfeiters. In the United States, the U.S. Department of the Treasury’s Bureau of Engraving and Printing (BEP) and the U.S. Secret Service were established to combat pervasive counterfeiting during the Civil War. At that time, it was estimated that one-third to one-half of the currency in circulation was counterfeit. Today, counterfeit U.S. notes are estimated at less than a hundredth of 1 percent of the currency in circulation. According to the Department of the Treasury, “the value of counterfeits in circulation is most likely around $70 million, or fewer than one in 10,000 notes, with about 60 percent of these held overseas. The upper bound is estimated to be about $170 million, or about 2.8 in 10,000 notes.”3 For hundreds of years, counterfeiting required considerable artistic and technical skill, as well as substantial resources. Until recently, the primary counterfeiting threat arose from organized professional criminals and, in a few instances, from hostile states. These types of counterfeiters were relatively large enterprises that presented multiple opportunities for tracking by law enforcement. Because the production of realistic copies of a sophisticated banknote was quite an expensive proposition, the quality of the counterfeits oftentimes was not high, enabling the public to spot forgeries readily. This scenario began to change during the 1980s with the advent of advanced reprographic systems and the accessibility of highly capable and inexpensive graphics software tools running on readily available workstations and desktop computers. Counterfeiting of this type is not intended to duplicate the processes used to make genuine banknotes, but instead simulates the result with much less expensive equipment. This type of counterfeiting no longer required artisans to engrave intaglio plates, nor did it require a large investment. Advances have put the technical means to counterfeit in the hands of ordinary people who, if they so choose, can manufacture a few counterfeits on an irregular basis with little fear of apprehension. At the request of the Bureau of Engraving and Printing, the National Research Council has undertaken several studies during the past 20 years to evaluate the emerging threat posed by advanced 3   U.S. Department of the Treasury. 2003. The Use and Counterfeiting of United States Currency Abroad, Part 2. The second report to the Congress by the Secretary of the Treasury, in consultation with the Advanced Counterfeit Deterrence Steering Committee, pursuant to Section 807 of Public Law 104-132, p. 68. Available at http://www.federalreserve.gov/boarddocs/rptcongress/counterfeit2003.pdf. Accessed April 2006.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes reprographic technology. Some general conclusions regarding the changing threat from three of the resulting reports are as follows: The potential threat to the United States currency from modern reprographic technology is great, due primarily to the expected increase in availability of high-quality color copier and scanner-printer combinations during the next five years.4 A broadening of the counterfeiting base made possible by the availability of commercial reprographic equipment can pose an intractable enforcement problem and cause serious erosion of confidence in United States currency.5 Rapid developments in reprographic technology could give rise to an unacceptable level of counterfeiting activity by making high-quality reprographic systems widely available.6 The increased availability of advanced color copiers and systems composed of a computer-scanner and printer makes widespread counterfeiting of U.S. banknotes a real and substantial threat. Ready access and ease of use could lead to abuse by “casual” counterfeiters. Copiers certainly pose a significant threat, but the most important threat in the foreseeable future … is color scanner-computer-printer systems, aided by the continuing evolution of more-sophisticated image-processing software. These systems also provide additional opportunities for professional counterfeiters.7 These studies identified potential counterfeiting threats posed by technologies that primarily replicate the visual appearance of banknotes. Until recently, most casual counterfeiters have focused on reproducing the visual appearance of a banknote while using primitive methods to replicate other features, such as the banknote’s tactile properties. However, emerging technology is being extended beyond the image-reproduction capability to the capacity for simulating or duplicating tactile and other nonvisual features. Also, new consumer products in crafting supplies, automotive touch-up paints, and nail polish are a few of the tools, along with new technologies, that can provide the counterfeiter with ways to replicate both the look and feel of the U.S. banknote. Counterfeit currency has impacts that can be considered on several levels—fiscal, personal, and psychological. While passing a counterfeit penny slug might be considered harmless, an incontrovertible fact is that no one wants to receive a counterfeit banknote. Laws of the United States and of nearly every country prohibit the spending or possession of counterfeits and require the reporting of the receipt of a counterfeit banknote. Reported counterfeits always produce a direct monetary loss to those who receive them because the fake bills must be surrendered to authorities without compensation. With no compensation incentive, a pattern of complacency may have emerged, with many people and businesses willingly absorbing the monetary loss of the value of the counterfeit rather than taking the trouble to report it. Many would choose to avoid what could be an intrusive and time-consuming interaction with authorities. The potential awkwardness of reporting a genuine note as a fake is also present. For these reasons, it is conceivable that counterfeiting is currently an underreported crime in the United States. The counterfeiting threat is constantly evolving, and new participants, methods, and effects are emerging.8 Undoubtedly the greatest modern threat is the counterfeiting of electronic forms of money and 4   National Research Council. 1985. Advanced Reprographic Systems: Counterfeiting Threat Assessment and Deterrent Measures. Washington D.C.: National Academy Press. 5   National Research Council, 1985. See note 4. 6   National Research Council. 1987. Counterfeit Threats and Deterrent Measures. Washington D.C.: National Academy Press. 7   National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, D.C.: National Academy Press. 8   M. Naim. 2005. Illicit. New York: Doubleday.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes its use for criminal purposes.9 While this is an urgent and strategic issue for modern law enforcement, it is not the focus of this report, which addresses the counterfeiting of physical currency, specifically, U.S. Federal Reserve notes (FRNs). An effective defense against counterfeiting requires an examination of technological advancements that can be employed by potential counterfeiters. It is clear that distributed, low-volume, casual counterfeiting poses a significant challenge to law enforcement. Indeed, much of the BEP’s rationale for upgrading the security features in U.S. banknotes has been based in the countering of this threat. The resulting proactive analysis has significantly influenced the design changes and incorporation of additional security features in U.S. banknotes during the past 20 years. Educating the general public with respect to the new security elements used in the redesign of banknotes and encouraging the use of simple but relatively accurate authentication tests have also become more important. THE NEED FOR A SYSTEMS APPROACH A U.S. banknote is one of the most respected items in our culture, yet it can also be one of the most mistreated. No other item of such value is routinely folded, crumpled, soiled, laundered, and otherwise ill-treated throughout its useful life. To survive this challenge, U.S. banknotes must meet daunting physical requirements. They must be manufactured reliably in large quantities and must be durable over time. In addition, their features must allow authentication, indicate their denomination, and deter their counterfeiting. Advances in reprographic technologies have driven the addition of specific counterfeit-deterrent features, which have been adopted without compromising current banknote recognition and respect.10 In the last decades of the 20th century, digital reprography—especially color copiers, desktop computers, and color printers—emerged as a serious counterfeiting threat. The ubiquitousness of home computers meant that casual computer users could now more easily make high-quality banknote simulations. It was this trend that led to the major redesign of U.S. banknotes. Since the mid-1980s, digital image-acquisition, image-processing, and image-printing technologies have grown steadily in their effect on FRN counterfeiting. Digitally produced counterfeits have increased from less than 1 percent in 1995 to roughly 40 percent today.11 The $1 bill was first issued as a Federal Reserve note in 1929, and its design has remained essentially unchanged since then. The $2 notes in use today were introduced in 1976, and their design has remained unchanged as well. The $5, $10, $20, $50, and $100 bills were redesigned beginning in 1990 to include several new security features that vary depending on the denomination. Most notable among the features added to FRNs are the introduction of offset printing (of colors other than green and black), color-shifting ink, watermarks, and colored threads. (Appendix B describes these features.) These features have been added while retaining the characteristic, highly recognizable appearance of U.S. currency. However, it is becoming increasingly easy and common to acquire and process the digital two-dimensional image features that are meant to be observed in reflected light. The capabilities of the technology are quickly approaching the point at which such features will no longer produce a significant barrier even to casual counterfeiting. These developments make necessary a regular assessment of the current state and near-term outlook for these technologies and of the threats that they may pose in terms of providing capabilities for creating 9   B. Grow. 2006. Gold rush. Business Week 3966:68-69. 10   The process began with the New Currency Design Task Force, which comprised representatives of the U.S. Department of the Treasury, the Federal Reserve System, the U.S. Secret Service, and the Bureau of Engraving and Printing (BEP). The Task Force made its recommendations to the Advanced Counterfeit Deterrence Steering Committee, also composed of representatives of the Treasury Department, Federal Reserve, Secret Service, and BEP. On the basis of Counterfeit Deterrent Features for the Next-Generation Currency Design, a comprehensive study by the National Research Council (NRC) issued in 1993, the Steering Committee then made recommendations for the new design and security features to the Secretary of the Treasury, who has the statutory authority to approve such changes. 11   L. Pagano, U.S. Secret Service. 2005. Presentation to this committee, May 24.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes counterfeit FRNs. These trends also imply that more elaborate optical and substrate features will need to be incorporated in the FRNs of the future to stay ahead of counterfeiters. The increase in digital counterfeits has also increased the availability of point-of-use machine detection of counterfeits. This may someday be a viable means to detect both counterfeit notes and their sources in an era of greater and more widespread use of digital image technology. Understanding and addressing the growing complexity of technologies used to produce, to verify, and to counterfeit FRNs requires a systems model. Such a model would permit a synthetic view of the application of new technology not only in the creation of counterfeit notes but also in their detection, their removal from circulation, and the identification of their sources. THE EFFECTIVENESS OF FEATURES ON U.S. BANKNOTES In the same way that “$” is a global symbol for “money,” U.S. currency is considered to be a worldwide symbol of security and integrity. The unique combination of design, paper and inks, and printing technology make a U.S. banknote one of the most recognized symbols worldwide. Maintaining this symbol and what it stands for is among the duties of the Bureau of Engraving and Printing. In the early history of the United States, the design of paper currency changed many times. Since 1928, however, changes in the design have preserved the overall architecture of U.S. currency; that is, all U.S. currency in circulation has the same size and feel, and the same historical figures and national symbols remain the same for each denomination. Appendix B describes the features on current U.S. notes, instituted in part to deter the creation of counterfeit notes. It is noteworthy that while many changes have been instituted there has been no recall or demonetization of U.S. currency already in circulation. The effectiveness of a banknote feature depends on the specific nature of a note’s use. Examples of different types of use include the following: two individuals wishing to complete a sale; a variety of machines designed to accept, disperse, or count banknotes; visually impaired individuals engaged in a transaction involving currency with machines or people; a foreign government official contemplating the circulation of U.S. banknotes in the local economy; and, finally, a counterfeiter intent on breaking the law. Banknote design is complicated by this wide variety of uses: a given feature on a banknote may aid just one or many of them. The wide range in types of use for FRNs is complicated further by the fact that these transactions may take place anywhere on the globe under a wide range of ambient lighting conditions. For any feature to be effective, it must work for the duration of the life of the note. A variety of durability tests are conducted by the BEP to ensure that banknotes have a reasonable circulation life. Tests include repeated crumpling and folding, soiling and occasional laundering of notes, as well as tests of their wet tensile strength, lightfastness, and chemical resistance to a variety of fluids. Interestingly, the durability of banknotes is itself a security feature. Experts report that counterfeit notes are often identified by their poor and uneven wear.12 Visual and Tactile Effectiveness The most striking visual feature of an FRN is the portrait on the front of the note. It is the largest single feature, and because it is a human face, many people find it easy to recognize small changes in its proportions or coloring. Each note also has one large, high-contrast numeral for use in low-light environments and by the visually impaired. However, this feature and others do not provide adequate differentiation for many visually impaired individuals and provide no method of differentiation for blind persons.13,14 12   J. Haslop, De La Rue. 2005. Presentation to this committee, July 21. 13   National Research Council. 1995. Currency Features for Visually Impaired People. Washington, D.C.: National Academy Press.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes Overt visual features on U.S. banknotes are designed to require only direct visual inspection for authentication. They are also intended to be impossible to replicate using low-resolution computer technology. These include the watermarked images, embedded plastic security strips, and color-shifting ink. Each of these features is denomination-specific; the watermarks repeat the portrait on each denomination and the security strips are embedded in a different position and contain different text and graphics for each denomination. Perhaps more important than the effectiveness of individual features is the effectiveness of the combination of features on the entire note. The placement of features and how they interact, however, is difficult to gauge. For example, printing over the many visual security features in the paper substrate may make them less effective. Crowding the note with too many features may result in users not noticing any of them. The lack of comprehensive information on the effectiveness of individual features was striking. Specifically, a variety of systematic and well-designed statistical tests would be very useful in decision making regarding recent feature modification and implementation. A limited number of these are discussed here, and more are needed. The BEP conducted a focus group study in 2001 and 2002 to determine how specific cash-handling audiences detect counterfeits in Series 1996 banknotes.15 In the course of these focus group studies, the bureau interviewed a total of 1,423 people in six categories: consumers, bank tellers, cashiers, gaming industry employees, law enforcement officials, and teachers. It was found that 29 percent of the cash handlers interviewed had identified counterfeit notes; the major tip-off was that the note “looked suspicious,” followed closely by the fact that it “felt suspicious.” In order, the features that caused interviewees to look closer were these: color, waxy feel, paper feel, paper thickness, smudged ink, portrait quality, and security strip. Color is the first feature checked, according to the group interviewed, and color is now easily duplicated by commonly available computer technology. Thus, the new series of notes may be less secure because cash handlers might stop looking for other features if the color appears to be “correct.” The BEP focus group members reported that when they suspected a counterfeit, the features that they used for confirmation, in order, were these: watermark, pen to indicate starch content, security strip, feel, color-shifting ink, fine lines, and shading in the denomination number. The features that this focus group was most aware of were, in order: watermark, security strip, color-shifting ink, fine lines, and microprinting. Although interesting and informative, focus group data are not as useful as those obtained in controlled studies, and self-reported usage of features should be interpreted with caution. In more controlled studies on U.S. currency, researchers have observed that “experiments indicate that people are good at detecting counterfeits, that inkjet counterfeits are easier to detect than offset counterfeits, and that counterfeits of the newly designed bills are easier to detect than counterfeits of the older series. The design improvement was greatest with the $100 bills and, to a lesser extent, $50 bills.”16 A marked improvement was also noted in recognition of the copper-to-green color-shifting ink on the $20 and $50 notes versus the green-to-black ink on the $10 and $100 notes. However, a key observation made in the course of this study was that “judging the improvement of features was not the same as judging their absolute efficacy.”17 When asking participants in the study to look at single features on the notes, the researchers noticed a variation in perception between situations when the entire note was presented and when the rest of the note was masked and only a single feature was visible. Experience and focus were also noted as key discriminators. 14   Information at http://www.ourmoneytoo.org/position.php refers to strategies of individuals and coalitions for improving this aspect of U.S. banknotes. Accessed March 2006. 15   Summary of BEP focus groups conducted in 2001 and 2002. 16   A.P. Hillstrom and I.H. Bernstein. 2002. Counterfeit detection for new and old currency designs. Proc. SPIE, Optical Security and Counterfeit Deterrence Techniques IV, R.L. van Renesse (ed.), Vol. 4677, pp. 65-80. 17   Hillstrom and Bernstein, 2002. See note 16.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes Studies of banknote features on other nation’s currencies have confirmed the importance of subjective considerations, including the consistency of the feature from note to note and the complexity of the overall design.18,19 All of the studies cited observed that education plays a large role in recognition of a genuine note. Machine Counting and Authentication In addition to the visually and tactilely detectable features of FRNs—a key line of defense against the passing of counterfeit notes—several machine-readable features are useful for both authentication and denomination. Machine reading of banknotes is a new technology; it was virtually nonexistent 15 years ago, but now annually processes more than $64 billion in U.S. currency. The features of U.S. banknotes most used in current machine readers are the optical spectrum and image, magnetic inks, ultraviolet fluorescence, ultraviolet spectrum, and infrared ink pattern. Low-end readers may sense only a single feature, usually the infrared ink pattern; high-end readers may use 10 or more measurements to authenticate each note. Four classes of machine readers are shown in Table 1-1. Each of these machines relies on different sets of banknote features: Single-note denominators. Commonly found in vending machines and change machines and at self-checkout stations, these typically use infrared, broad-wavelength optical, or magnetic sensors to detect denomination-specific features. Single-note authenticators. These typically include additional sensors to also detect ultraviolet and fluorescent patterns and to identify individual features. Desktop counters. These are used to sort and count large numbers of notes at high speeds, up to thousands of notes per minute. They typically employ broad-wavelength optical imaging, ultraviolet spectrum, and magnetic signals. High-speed counter-sorters. These require features that give a strong signal that is not highly position dependent; thus, neither the ultraviolet and infrared ink features nor the gamut of overt features are generally sensed. Large-scale counter-sorters, used typically by banks, casinos, and high-volume businesses, employ detection technologies similar to those of desktop counters. Typically, manufacturers of machine readers report that low-quality counterfeits are identified by a low optical image quality, lack of magnetic and/or infrared ink, or incorrect paper fluorescence. High-quality counterfeits may require detailed magnetic signature sensing or ultraviolet spectrum sensing to be detected. Ninety percent of suspect notes are caught because they do not have an authentic magnetic pattern signature. Most overt counterfeit-deterrent features are not used by machine readers because they are difficult to sense, locate, or verify. Features not used for machine authentication include color-shifting ink, cotton fibers, watermarks, security strips, and microprinting. Typical machine readers use point sensors that scan a narrow strip near the center of the note as it moves through the reader; they do not scan the full width of the bill. To do so would require an array of point sensors, which would be cost-prohibitive, or a rastered sensor, which would be speed-prohibitive. In addition, the large data set collected by scanning the complete note would require too much time to analyze. Because point sensors are used, image-recognition schemes, which require scanning a large area, 18   A.A. Andrade. 2004. Assessing the security of a hologram with the assistance of a multi-criteria decision analysis. Keesing Journal of Documents and Identity 9:10-14. 19   R.M. Klein, S. Gadbois, and J.J. Christie. 2004. Perception and detection of counterfeit currency in Canada: Note quality, training and security features. Proc. SPIE, Optical Security and Counterfeit Deterrence Techniques V, R.L. van Renesse (ed.), Vol. 5310, pp. 1-12.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes TABLE 1-1 Banknote Features Used in Commercial Machine Authentication Feature Single-Note Denominator Single-Note Authenticator Desktop Counter High-Speed Counter-Sorter   Low-end High-end       Optical spectrum — X X X X Magnetic properties — X X X X Paper fluorescence — — X X X Fluorescent strip — — X X X Color-shifting inks X X X — — NOTE: Features not used in commercial machine authentication include the watermark, optically variable ink, security strip, microprinting, portrait, freedom symbols, intaglio printing, color, digital counterfeit deterrence system, metallic ink seals, and colored fibers. are not practical. In addition, small, distinct features such as security strips, which occur in different locations on each denomination, may miss the sensor “window.” Finally, features that move when a note is redesigned may move out of the sensor window. In a high-speed counter, the signal strength from each note must be high enough to be sensed in 0.04 second. Several features can be useful for reading in this short time, including the magnetic ink signal, the pattern in infrared ink, and the ultraviolet spectrum and fluorescence of the paper. High color contrast, as in previous, all-intaglio note series, provides a strong optical signal; however, artistically smooth shadings and the addition of multiple colors and features cause the optical contrast to decrease. In addition, for the purposes of machine readers, the signal from a feature must be reliable. Overall color, which changes with use, is an example of an unreliable signal. Machine readers feed notes in one of two directions. “Short-end-first” readers include nearly all single-note readers, as well as some large-scale counter-sorters. All other high-speed readers take notes “wide-end first.” The advantage of short-end-first readers is that sensing the length of the bill provides more information and a higher signal. Wide-end-first readers have the advantage in speed because they read a shorter path per bill. Certain features on current notes are easily read in either feed direction. These include the ultraviolet spectrum and fluorescence of the paper and the patterns in magnetic and optical ink in the printed image. An example of a feature that is not readable in both directions is the infrared ink pattern, which is a set of stripes parallel to the short edge of the note.20 A short-end-first reader senses an on-off pattern as the counter moves along the note, whereas a wide-end-first reader cannot sense the stripe pattern, but only whether the sensor is or is not within a stripe. CONCLUSIONS Security features that maintain the “look and feel” of historical U.S. banknotes have been added to today’s Federal Reserve notes. (Appendix B describes these features.) These new features—including security strips, watermarks, embedded fibers, color-shifting ink, and microprinting, fine-line printing, and color printing—provide means for counterfeit deterrence and authentication as well as presenting difficulties for nonauthorized sources attempting to replicate the notes. 20   Cummins-Allison Corporation, Mount Prospect, Ill. 2005. Discussions during a subcommittee visit, October 7.

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Is That Real? Identification and Assessment of the Counterfeiting Threat for U.S. Banknotes The security features in current use are highly durable, low-cost, odorless,21 and environmentally sound. Many of the features are detectable by the unaided eye. The unique look and feel of the substrate itself is an important part of the FRN’s recognizability, so printing over much of it may be counterproductive. The use of machine readers for currency is increasing worldwide; the security features used by machine readers differ from those used by human cash handlers. Because the machine-readable features of currency are sometimes changed as currency design changes, the design of these machines must be changed with each currency design change, which may provide a window of opportunity for astute counterfeiters. Additionally, the orientation of features may not necessarily work optimally with high-speed machine feeders, which can limit the machine’s functionality. 21   It is interesting to note that banknotes are odorless once the ink has fully dried; however, some volatiles may be detected by scent in brand new notes.