Counterfeiting of money
Counterfeiting of money refers to the illegal reproduction of currency with the intent to deceive and defraud. Historically, the practice has deep roots, with early forms of currency primarily consisting of coins. In the United States, paper money became prevalent by the end of the 18th century, but it was not until after the Civil War that the government took significant steps to combat counterfeiting. The introduction of diverse and poorly regulated banknotes made it easier for counterfeiters to thrive, leading to the estimation that a substantial portion of currency in circulation during the 1860s was fraudulent.
To address the rampant counterfeiting, the U.S. Secret Service was established in 1865, and its efforts successfully reduced the prevalence of fake currency. In the modern era, advancements in printing technology have complicated the fight against counterfeiting, as high-quality reproductions can be created using laser printers and photocopiers. While financial institutions have developed measures to detect counterfeit bills, consumers still face challenges, as counterfeit currency can circulate in everyday transactions. Additionally, the problem extends beyond currency to include counterfeit goods, affecting various industries and consumers alike. The ongoing battle against counterfeiting highlights the importance of regulatory measures and public awareness in safeguarding economic integrity.
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Subject Terms
Counterfeiting of money
Definition Illegal copying of currency or of brand-name or designer goods for the purpose of committing fraud or creating political and economic instability
Counterfeiting of money weakens the foundation of a financial system by devaluing its currency. Counterfeiting products causes loss of profits, damage to a brand, and possible injury to unwitting consumers.
Counterfeiting of currency has very deep roots. Coinage was the only form of currency issued by governments for most of history. The early European Americans relied on coins rather than paper money, with Spanish, French, and British coins circulating widely until US coinage became common. Coins could be reproduced with less valuable metals, but such forgery required some skill with metalworking and was apparently not common.
Historical Background
Paper money is much easier to counterfeit, but it was not widely used in the United States until the end of the eighteenth century. By 1750, most of the North American colonies had experimented with forms of paper currency, but there was little in America that resembled the wide array of banknotes then available in Europe. Business in the colonies was conducted largely by credit in the forms of bills of exchange. Essentially, these were promissory notes in which one merchant pledged to pay another an agreed-upon sum on demand. Bills of exchange, easy to counterfeit, circulated much as paper money does. Despite harsh laws against counterfeiting, few counterfeiters were caught, because few government officials were looking for them. In 1775, the Continental Congress began issuing paper money, known as Continentals, but it did not take any procedures to protect the currency against counterfeiters. In 1792, the US Congress passed the Mint Act, which established the coinage system and the dollar as the principal unit of currency. Without an agency dedicated to protecting the currency, counterfeiting remained a problem.
The federal government did not print paper money until 1861, despite a nationwide demand for such easy-to-transport currency. The government would occasionally issue Treasury notes during periods of financial stress, such as the War of 1812, the Mexican War, and the Panic of 1857. The federal government did not regulate the regional banks that did issue paper money in an effort to assist traders. This lack of federal interest in paper currency created a nation of counterfeiters, as it became next to impossible to distinguish legally produced paper money from illegally produced paper money.
Paper money is far more difficult to protect against forgers than is coinage. By the 1850s, more than ten thousand types of cheaply printed paper money were used legally in the United States. Unlike modern currency, this paper money was not printed on specially marked paper with specially designed inks and patterns. As a result, counterfeiters had a field day. The US Treasury estimates that one-third of paper money in circulation in 1860 was counterfeit. This situation threatened to spark inflation by devaluing the currency. The chaos did not end until 1861, when Congress attempted to finance the US Civil War by passing legislation permitting the Treasury to issue and circulate paper money.
From 1863 to 1929, the federal government again permitted thousands of banks to issue their own paper currency under the National Bank Acts. This money, known as national banknotes, was produced on paper authorized by the US government and carried the same basic design, thus supposedly reducing the risk of counterfeiting. However, this currency was counterfeited so widely that Congress established the US Secret Service in 1865 to put a stop to the counterfeiting. The Secret Service largely succeeded, and counterfeiting dropped dramatically.
While such stringent anticounterfeiting measures continued into the twenty-first century in the United States, officials still have to combat foreign counterfeiting operations in countries where the practice is not as closely monitored. In 2016, it was revealed that for many years, Peru has been one of the leading sources of counterfeit money circulating in the United States. That year alone, allied with Peruvian authorities, the Secret Service reportedly recovered $30 million dollars in counterfeit US bills. After sophisticated operations involving the use of offset printers and artists dedicated to rendering the money as close to the real bills as possible (including watermarks and other new designs as well as texture), counterfeiter groups then have the money smuggled carefully into the United States. While banks have the technology to recognize and intercept fake bills, people can largely use the counterfeit money at stores.
Modern Technology
The emergence of high-quality laser printers and color photocopying during the late twentieth century aggravated the problem of counterfeit paper money, as it has become much easier to reproduce a bill with an altered denomination or to create an entirely counterfeit piece of currency in vast quantities. However, distinct differences usually remain. In genuine currency, the details of the designs are sharper with a clear background. Counterfeit currency often has blurred borders, shaded backgrounds, and fuzzy designs, as well as red and blue marks on the surface of the paper. Genuine currency has red and blue fiber as part of the paper itself. Most counterfeit coins in the modern era are produced to imitate rare objects and fool coin collectors. The most common changes in counterfeit coins are the removal, addition, or alteration of the coin’s date or mint marks.
Counterfeit goods are more complicated to combat than is counterfeit currency, partly because of the worldwide scale of the problem. By the millennium, the counterfeiting of American goods had become a major concern of businesses ranging from clothing designers to film studios. Some of the “knockoffs” were sold so cheaply and under such circumstances that consumers could reasonably be expected to know that they were purchasing counterfeits. Other consumers, such as those purchasing pharmaceutical products on the internet, were unaware. Counterfeit products have proven costly to manufacturers, who lose both profits and reputations for quality and, perhaps, exclusiveness.
Bibliography
Bender, Klaus W. Moneymakers: The Secret World of Banknote Printing. John Wiley & Sons, 2006. Revealing exploration of how currency notes—both American and foreign—are produced, with fascinating anecdotal material.
Holley, Peter. "They Make the Finest Counterfeit Money in the World. The U.S. Just Recovered $30 million Worth." The Washington Post, 22 Nov. 2016, www.washingtonpost.com/news/post-nation/wp/2016/11/22/they-make-fake-money-worth-more-than-cocaine-the-u-s-just-recovered-30-million-of-it/. Accessed 30 Nov. 2018.
Mihm, Stephen. A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States. Harvard UP, 2007. Excellent source providing a historical perspective, this volume presents true stories of counterfeiting during the early years of the independent United States and discusses the impact counterfeiting had on the economy and growth of the nation.
Scott, Kenneth, and David R. Johnson. Counterfeiting in Colonial America. U of Pennsylvania P, 2000. Lively study of counterfeiting in Britain’s North American colonies.
Tremmel, George B. Counterfeit Currency of the Confederate States of America. McFarland, 2003. Among the many financial problems that the Confederacy had during the Civil War was the rampant counterfeiting of its currency. This book examines how the Confederacy’s treasury department tried to stop counterfeiting. Includes illustrations of the counterfeit currency and information on the methods used to produce it.
The Use and Counterfeiting of U.S. Currency Abroad. US Department of the Treasury, 2003. Federal government publication on the growing problem of foreign counterfeiting of US currency.
Warner, Richard D., and Richard M. Adam. Introduction to Security Printing. Graphic Arts Center, 2005. Study of the technical aspects of printing currency notes that are difficult to counterfeit.
Williams, Marcela M., and Richard G. Anderson. Handicapping Currency Design: Counterfeit Deterrence and Visual Accessibility in the United States and Abroad. Federal Reserve Bank of St. Louis, 2007. Discusses the various trade-offs that governments make when deciding how best to design currency and the necessity of periodic design changes to help protect currency against counterfeiting. Pays special attention to currency design in relation to the needs of persons who are visually impaired.