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Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
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1

INTRODUCTION

A nation's ability to print money to enhance trade and commerce is critical to its sovereignty. It is difficult to imagine a modern economy functioning smoothly without conducting some financial transactions with paper money. At this juncture, achieving a “cashless” society appears to be a very long-term prospect1. It has been estimated that there are approximately 50 billion banknotes (all currencies) in circulation worldwide (Murphy, 1992). The U.S. Bureau of Engraving and Printing (BEP), one of the world's largest printer of banknotes, produces 7 to 9 billion banknotes per year worth over $80 billion for the Federal Reserve System; about 93 percent of these new notes replace those that are destroyed, and the remainder are used to satisfy the increased demand. During 1991, the Federal Reserve System handled 13.6 billion banknotes that had a total value of $265 billion (Cameron and Stoides, 1992).

The earliest paper money is reported to have appeared in China's Sichuan Province at the end the tenth century. Its use is attributed by some to the difficulty that mercantile traders experienced in handling large quantities of coins. Marco Polo is generally credited with introducing the concept of paper money to the West, presumably as a consequence of his travels to China at the end of the thirteenth century. Although different countries adopted various implementations of paper money, they all shared an important, common characteristic: the currency had intrinsic value payable to the bearer of the note. Since these notes were not registered to any individual, their anonymity was quickly recognized by counterfeiters as providing a lucrative target: a problem that persists to this day.

In order to reduce counterfeiting, early societies exacted severe penalties for forgery. Chinese notes of the early Ming dynasty (1368-1644) carried this warning: Whoever forges notes or circulates counterfeit notes shall be beheaded. Whoever reports and apprehends a counterfeiter shall receive a reward of 250 silver tael and the counterfeiter' s entire property (Kranister, 1988). Forgery was a hanging offense in England from 1697 to 1832. During this period, approximately 600 counterfeiters were condemned to death, but even this threat of severe punishment did not eliminate counterfeiting2.

1  

The New Directions Committee of the Institute of Electrical and Electronics Engineers cites achieving a cashless society as one of the grand challenges for electrotechnology (IEEE, 1993).

2  

Interestingly, the penalty was eased after the public became outraged at the Bank of England's lackadaisical approach to producing a note that was resistant to counterfeiting.

Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
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Thus, forgery has been a threat for centuries. The old axiom is still true: What one man can do, another can copy. Throughout history, people have received and passed money without detailed examination. Counterfeiters have exploited this behavior by realizing that they do not have to make an exact copy, but only one good enough to pass once.

Governments know that if the public could readily recognize fakes, counterfeiting would become very risky and unprofitable. This line of reasoning has led to the incorporation of security features in banknotes. Banknote producers have used a variety of methods that include unique, complex methods of printing not generally commercially used; unique materials, such as watermarked paper, not available to the general public; distinctive images, designs, and patterns developed by artisans, which are easily recognizable but difficult to duplicate; and public education regarding recognition of genuine notes.

It is instructive to examine how the United States solved the most severe counterfeiting problem in its history. The U.S. Civil War of 1861-1865 represented a peak period for American forgers3. It has been estimated that about one-third of the paper money in circulation in 1863 was fake. This caused significant erosion of confidence in the federal government. A key factor leading to this problem was the approximately 1,600 state and private banks with the authority to design and issue notes independently. In 1863, Congress standardized American banknotes by instituting a single national currency. However, counterfeiting continued relatively unabated. As a result, President Lincoln established the Secret Service in 1865 as a law enforcement agency dedicated to the elimination of banknote forgery. The Secret Service was very successful in forming investigative units that tracked down and prosecuted counterfeiters. Consequently, faith in American money was quickly restored.

This success story was aided by two critical elements: (1) only a few counterfeiters accounted for the preponderance of the problem; and (2) counterfeiting required specialized skills, equipment, and materials that could be traced. At the same time, counterfeit-deterrence features were being added to the banknotes to make them more difficult to copy. For instance, in 1861 green ink was first used for printing American banknotes in order to counter the threat posed by the cameras of that age that only used black-and-white film (Kranister, 1988) Also, in 1869 the U.S. Treasury began printing paper money on a controlled, high-quality watermarked paper that featured wide vertical bands of dark blue jute fibers embedded in the paper substrate.

In 1879, the paper specification was changed to “pure linen stock, with continuous colored (red and blue) silk lines or threads running parallel to each other from top to bottom of each cell. . . in addition colored (red and blue) silk fibers were introduced into the pulp” (BEP, 1963). These bands of colored threads were determined to be a sufficient deterrent, the watermark was eliminated.

No significant changes in distinctive features of U.S. banknotes were made until the introduction of redesigned notes in 1929. The size of the note was reduced by 25 percent,

3  

From an earlier point in U.S. history, the well-known cliché “Not Worth a Continental” was the result of widespread counterfeiting of currency issued by the Continental Congress, which was greatly encouraged by the British.

Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
×

resulting in significant cost savings. The localized silk threads were discontinued and replaced with small, distributed red and blue fibers. The planning for these changes had started 20 years earlier, in 1909. An important feature was the standardization of a particular portrait each denomination banknote to prevent counterfeiters from easily “upping” the value of a note by only changing the denomination. There were many differences of opinion to resolve in the process, such as selection of the portraits, the denominations they would be used for, colors for overprinting on the faces, the color of the back, and so on.

The design of American banknotes has not undergone major changes since 1929. Since that time, the U.S. dollar has become a de facto worldwide currency. Also with the advent of advanced imaging and printing methods, the dollar's resistance to counterfeiting has begun to decrease. Changes to U.S. currency which were introduced as late as 1991, attempted to forestall a major redesign of the dollar while providing additional security against the newer threats4. At the present time, the number of counterfeit bills produced using the new color copiers and printers is still small, but the rate has been doubling for the past three years. This has set the stage for a close examination of the design and materials used in U.S. banknotes so that a future crisis can be avoided5.

There are many possible deterrent features that could be employed. Some of these features are already in use in other countries and could be incorporated in U.S. currency very quickly; some could be ready for incorporation within a relatively short time; and others require further development effort and thus would not be available for some time. The critical issue is: Which features should be added to provide increased counterfeit deterrence for the next 5 to 10 years? In order to address this question properly, the following factors must be taken into account:

  • What counterfeiting scenarios are likely to be employed in the foreseeable future?

  • Which counterfeit deterrent features have the most promise, based on technical considerations?

  • What unchangeable constraints and design limitations are imposed by the currency manufacturing and distribution system?

  • What is a reasonable trade-off between security and added cost?

This report addresses these issues and makes a number of recommendations concerning the strengthening of U.S. banknotes against counterfeiting.

4  

These changes were the security thread and microprinting around the portrait.

5  

It might be observed that the forecasted primary threat (many casual counterfeiters employing readily available equipment and supplies) is the inverse of the two critical elements that helped the Secret Service successfully halt counterfeiting after the Civil War (few counterfeiters using specialized equipment and supplies).

Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
×

REFERENCES

Cameron, J., and J. Stoides. 1992. Presentation by J. Cameron and J. Stoides, Federal Reserve System, to the Committee on Next-Generation Currency Design. June 15, 1992.

Krevsky, Seymour. 1993. President's Message. Engineering Management Newsletter 4(3), July. Pg. 1. New York: IEEE Engineering Management Society of the IEEE.

Kranister, W. 1988. The Moneymakers International. Cambridge, England: Black Bear Publishing, Limited.

Murphy, C. 1992. A license to print money. Atlantic169(6): 26-18.

Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
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Page 13
Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
×
Page 14
Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
×
Page 15
Suggested Citation:"1 Introduction." National Research Council. 1993. Counterfeit Deterrent Features for the Next-Generation Currency Design. Washington, DC: The National Academies Press. doi: 10.17226/2267.
×
Page 16
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Traditionally, counterfeit deterrent features restricted counterfeiting to only the dedicated craftsman. With the advent of highly sophisticated reprographic systems, this is no longer true. Redesign of U.S. banknotes is necessary in order to incorporate additional features aimed at discouraging counterfeiting using advanced copiers-scanners-printers. This volume evaluates a large number of such features while recommending a comprehensive national strategy for anticipating and responding to counterfeiting threats.

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