Opportunities and Challenges of the U.S. Dollar as an Increasingly Global Currency: A Federal Reserve Perspective

Federal Reserve Bulletin, Sept, 2001 by Michael J. Lambert, Kristin D. Stanton

As the threat of counterfeits produced by reprographic equipment diminished, however, advances in personal computing technology increased opportunistic counterfeiting because personal computers and related peripheral equipment became affordable and widely available. The Secret Service defines counterfeits that are produced with personal computers (including scanners, image-editing software, and printers) as inkjet counterfeits. Since 1996, the proportion of inkjet counterfeits has grown from less than 1 percent of total passed counterfeits in fiscal year 1995 to nearly 50 percent in fiscal year 2000.

Although U.S. currency includes features that are not easily reproduced with personal computers, the public lost about $20 million in fiscal year 2000 from relatively poor-quality inkjet counterfeits. To supplement the existing anti-counterfeiting security features, the United States is cooperating in an international effort to devise technical solutions that will reduce the ability of the opportunistic counterfeiter to reproduce currency on personal computers.

The Federal Reserve and the Secret Service regularly monitor counterfeiting activity to ensure that the integrity of U.S. currency is not compromised. Although the Secret Service is the primary agency responsible for combating counterfeiting activity, the Federal Reserve also plays an important role in detecting highly deceptive counterfeit notes that pass unnoticed to the public. Reserve Banks also detect other counterfeit notes of varying quality. On average, depository institutions and the public detect about 80 percent of the total value of counterfeit notes passed and, as required by law, report the counterfeits to local police or the Secret Service. The Federal Reserve Banks detect about 20 percent of passed counterfeits that are not detected by depository institutions or the public.

The Secret Service analyzes suspect notes that it receives from depository institutions, Reserve Banks, other law enforcement agencies, and the public and classifies them according to identifying characteristics that help to track notes (or families of notes) that come from the same producer. Fortunately, largely through an effective counterfeit-deterrent design and the efforts of the Secret Service, counterfeiting incidents are relatively low (the probability of the public's receiving a counterfeit U.S. note is about one in 10,000), and public confidence in U.S. currency remains very high.

CURRENCY DESIGNS AS A DETERRENT TO COUNTERFEITING

The basic design of the Series-1929 Federal Reserve note required very few security features. The distinctive feel of genuine currency paper, the raised surface that results from intaglio printing, and the red and blue security fibers were sufficient as low-level security features to deter counterfeiting.(14) Although counterfeiting activity existed during this period, the threat was not significant, and the overall risk to the public was relatively inconsequential.

During the 1980s, the Department of the Treasury and the Federal Reserve recognized that U.S. currency was vulnerable to counterfeiting and commissioned a private consulting firm to evaluate the impact of emerging imaging technologies on the counterfeiting of U.S. currency. The study concluded that graphic arts and reprographic imaging systems might eventually pose a serious counterfeiting threat.(15) In response to both the study's findings and independent work that the Federal Reserve conducted, the Department of the Treasury approved a new-series design in 1990. The Series-1990 currency incorporated a security thread and microprinting as visual counterfeit-deterrent features that the public could use to authenticate genuine currency and that were difficult to replicate with reprographic imaging systems.