The End of Money

by David Wolman

  Forged $100 bills play a unique role in this panoply of the illicit. For one thing, they gel with the regime’s febrile anti-Americanism and the aim to undercut U.S. global power by sowing doubts about our currency. Counterfeiting at the state level is a kind of slow-motion violence committed against an enemy, and it has been tried many times before.7 During the Revolutionary War, the British printed “Continentals” to undermine the fragile colonial currency. American currency eventually went into a hyperinflationary death spiral—due more to over-issuing by the nascent United States than British subterfuge, but the counterfeits didn’t help. Napoleon counterfeited Russian notes during the Napoleonic Wars, and during World War II, the Germans forced a handful of artists and printing experts in Block 19 of the Sachsenhausen concentration camp to produce fake U.S. dollars and British pounds sterling. (Their story is the basis for the 2007 film The Counterfeiters, which won the Oscar for Best Foreign Language Film.)

  While the Nazis worked on their banknote blitz, the United States had another shrewd use for bogus banknotes. The U.S. military airdropped onto Japan an untold number of notes with copied artwork from the ¥5,000 bill on one side and a message in Japanese on the other, urging people to buy commodities like food and clothing and to steer clear of banks and bonds. The goal was to hit Japan’s war machine in the wallet. “With saving bonds you cannot stop a child from crying,” read one such note. Another said: “The military clique is squandering your tax money.” These communications were less persuasive than the ones the Japanese were receiving at home: Your God-emperor wants you to take over the world or die trying. Still, it was a clever and relatively harmless way to try to win hearts and minds.

  During the war in Vietnam, the United States produced convincing counterfeits of the North Vietnamese Dong banknotes, with a tear-away warning attached that has an ironic tint today: “The Communist Party is spending your money on a hopeless war. If the war goes on, there will be nothing for you to buy. The war is destroying your country. All your savings will be worthless.” 8

  That warring countries try to exploit paper money’s fragile worth is a reminder that without a supply of authentic cash—and trust in it—countries fall apart. Most money may be digital nowadays, but I don’t think anyone wants to run the experiment of obliterating the integrity of the greenback with a massive flood of fakes to see just how uncritical paper money’s trustworthiness has become. Do we really want to eliminate one of the last remaining tactile symbols that ties us together as one nation, under God, transacting peacefully?

  Economic warfare may be part of North Korea’s counterfeiting effort, but the simpler and more likely explanation is that the government needs money. It can’t buy much with its nearly worthless national currency, the won. A recent attempt to raise funds revealed the level of the country’s fiscal desperation, as well as the abuse Dear Leader is willing to inflict on his people: in 2009 the regime devalued the currency by 100 percent. One thousand won now only has the purchasing power of ten won.9 Officials set a tight limit on how much of the old money could be exchanged for the new, which meant whatever paltry savings people might have had were destroyed overnight.

  This disastrous policy inevitably wrecks commerce, as Roman emperors who debased their currencies can attest. Goods leave the marketplace because no one wants to sell anything if they’re going to be paid with a medium of exchange that doesn’t have value, or that they don’t believe has value, which is essentially the same thing. With that, everything breaks down: paying, buying, accumulating wealth, and, most of all, any hope of forging a more prosperous tomorrow. The change in value is called revaluation, but it could just as easily be called kleptocracy. By comparison, raising funds by counterfeiting the currency of a more stable economy looks downright humanitarian.

  Supernotes are not super forgeries because of any technological prowess on the part of the North Koreans. It’s a matter of equipment. The North Koreans are apparently in possession of the same kind of intaglio printing press used by the Bureau of Engraving and Printing, and the notes are printed on similar high-tech paper.10 A leading theory is that in 1989, just before the collapse of the Berlin Wall, the press (possibly presses) made its way to North Korea from a clandestine facility in East Germany, where it was used to make fake passports and other secret documents. That same year, a teller at the Central Bank of the Philippines noticed that the paper of a $100 bill that had crossed her desk didn’t feel quite right. She reported it to the authorities, and soon the U.S. Secret Service opened a file labeled “supernotes.”

  For almost seventy years, the design of Federal Reserve Notes was essentially unchanged. Bureaucratic inertia, perhaps, but today this consistency is almost sacred—and carefully guarded. It’s a symbol of economic might and stability. Perhaps the connection between unchanged banknote design and economic stability was never taken as seriously by banknote users as government officials might have thought, but whatever it meant, that streak ended in 1996.11 The supernote problem forced a redesign of the dollar. That remake, and another that followed a decade later, incorporated new security features like microscopic printing. The newer series notes also have vertical security strips, which you can see if you hold the note up to the light. Under an ultraviolet lamp, this strip shines pink for the $100, and other colors for other denominations.

  Then there’s the shifty ink. The 1996 series twenties, fifties, and hundreds have ink that jumps from green to black, depending on the angle at which you hold the paper. The technology has its roots in the U.S. space shuttle program, in a special material used to coat the shuttle’s windows to block cosmic rays.12 The United States buys the ink from a Swiss company—so much for Buy American—and is the exclusive customer for the color-shift combo of green to black. Not long after this deal was struck, however, the North Koreans bought the rights to the green-magenta combo, which to the untrained eye can look a lot like green-black.13

  Within two years after the first redesign, a newer supernote model was found in circulation, and supernotes copying the 2003 series have also been confirmed.14 At one point during the investigation, an undercover FBI agent obtained a bulk order of supernotes at a 70 percent discount. (In this maze of values, counterfeiters sell their wares for a fraction of face value because the risk is borne by the buyer.) The first Secret Service agents he showed them to thought they were real, and it was only later, after a detailed analysis by experts in Washington, D.C., that the notes were identified as forgeries.15 There are now at least nineteen different versions of supernotes.

  In 2005, two U.S. undercover investigations, dubbed Royal Charm and Smoking Dragon, netted about $4 million in supernotes from North Korea. The 2007 conviction of a Taiwanese man who had been caught laundering millions of dollars’ worth of supernotes in Las Vegas casinos suggests the mainstreaming of the 1996 and 2003 reissues hasn’t brought an end to this scourge. Chen’s package of counterfeits in San Francisco showed that the supernote hasn’t been eradicated and may be going strong.

  BUT WHAT DO YOU REALLY CARE that Dear Leader fakes C-notes? On one level, it’s little more than black comedy: forging the currency of the evil capitalists because your own currency is nearly worthless. The absurdity reaches its pinnacle in light of the North Korean concept of juche, or self-reliance—a “philosophy” conjured by Dear Leader himself.16

  Supernotes also provide delicious ammunition for rhetoric in Washington. In his typical staccato bravado, President George W. Bush said in 2006: “North Korea’s a country that has declared boldly they’ve got nuclear weapons. They counterfeit our money. And they’re starving their people to death.”17 It’s one thing for North Korea to hurl missiles over our ally, Japan, sink a South Korean navy vessel and its crew, shun talks to promote peace, bomb a South Korean island, and point guns at our servicemen and women stationed on the southern edge of the Demilitarized Zone. But plagiarizing our money? That is just low.

  Yet how different is Kim Jong Il’s counterfeiting, really, from the decision
to spend $700 billion in borrowed money to kick-start economic growth, from creating more than $1 trillion out of thin air to help clean up the housing bubble crisis?18 That may sound blasphemous, but Americans have a long tradition of skepticism about money creation, forgeries or otherwise. In 1837 John Quincy Adams said that the only thing separating counterfeiters from bank directors is that the former are more skilled and modest. “It requires more talent to sign another man’s name than one’s own and the counterfeiter does at least his work in the dark, while the suspenders of specie payments brazen in the face of day, and laugh at the victims and dupes, who have put faith in their promises.”19 Back then, of course, there wasn’t a single clearly defined national currency. Yet today’s efforts to defend against counterfeiters are vestiges of bygone eras of confusions about banknotes’ authenticity and suspicion about the alchemy of money creation.

  Through this prism, Kim Jong Il is merely adding a few million drops into the ocean that is the money supply. Depending on how finely you slice it, supernotes are real money—medium of exchange, store of value, unit of account, and so on. Illicit, sure, and they do hurt the Little Guy if he accepts one and then loses money because of it. But they can be traded for goods and services. The only thing that neutralizes the value of confiscated supernotes is that they’re stuck in a filing cabinet somewhere at the headquarters of the U.S. Secret Service. Wander down this alley far enough, and you’ll eventually bump into two questions that share an answer: What is real? What is value? Whatever we believe it to be.

  What’s most dangerous about supernotes is not, in fact, the attempt to devalue your savings or undermine the currency, but what the North Koreans hope to procure with them. According to the House Task Force on Terrorism and Unconventional Warfare, supernotes aid the regime’s effort to acquire nuclear materials.20 That’s probably why we don’t hear much of late about counterfeiting from Washington. You’ve got to pick your battles, and nukes are the obvious priority here.

  Officials estimate that about three of every 10,000 U.S. banknotes are counterfeit. Most of those are poor-quality forgeries, usually printed on inkjet printers by meth addicts who, on their third sleepless night in a row, get the bright idea to bleach a pile of $5 bills, scan a $20, and then re-print the image of the $20 on the bleached paper. (The Secret Service says more sophisticated bleach-based schemes in Colombia, Nigeria, and Italy have produced half-decent fakes.)21 Other estimates suggest that counterfeits constitute as much as 30 percent of the stock of U.S. dollars circulating in Africa, Russia, and parts of Eastern Europe.22 The true figure, although ultimately unknowable, falls somewhere in between.

  The Secret Service says it has been seizing, on average, $3 million worth of supernotes a year over the past decade or so. In comparison, it seized $113 million in all counterfeit U.S. currency in 2005, and $177 million in 2009.23 Mind you, that is just the fakes that get discovered within the United States. Since the supernotes were first detected, at least $45 million worth believed to be of North Korean origin have been detected in circulation, and the regime pockets an estimated $15 to $25 million year from them.24 (Some other official estimates of the supernotes in circulation are much higher—up to several hundred million dollars’ worth.)25

  Meanwhile, counterfeiting operations elsewhere are ramping up as well. Over the past decade, Colombian authorities, with support from the U.S. Secret Service, seized about $239 million in counterfeit greenbacks and busted almost 100 printing operations. But like a game of Whac-A-Mole, this pressure has just pushed the forgers to set up shop elsewhere. Since the arrival of a Secret Service unit in Peru in 2009, investigators have already netted more than $20 million in bogus notes and terminated more than a dozen printing operations.26 Anyone want to wager whether El Salvador or Honduras will be the next hot spot? As a Secret Service representative explained to Congress during testimony in 2010, production and distribution of counterfeit notes is going global.27

  Yet an absolute value for the number of counterfeits in existence has never really been the core threat—nor will it ever be, as long as the banknotes’ direct impact on the economy is de minimis. A few hundred million in counterfeits sounds massive, but compared to the $1 trillion worth of banknotes that are out there, it’s a barely perceptible few one-hundredths of a percent. The real danger, nukes notwithstanding, is the sign I saw the other day at an ice cream shop not far from where I live: “We do not accept bills over $20. Sorry for the inconvenience.” I asked the server why. “We get a lot of counterfeits here,” she said. “Not that I would know if I was holding a fake or not.”

  This is lost confidence in a nutshell, and it’s scary. In 2004, Taiwanese bankers and government officials began pulling millions of supernotes from circulation after detecting a small number of counterfeits. The Central Bank of Taiwan had decided, perhaps recklessly, to deliver a public warning about the fake $100 bills, telling people to have them double-checked at their local bank.

  Oops. Thousands of Taiwanese citizens who had been readying for the summer travel season, exchanging Taiwanese dollars for greenbacks, suddenly flipped out. According to the State Department, people dashed to the banks to trade in several hundred million dollars, most of which were legitimate. It was, in no uncertain terms, a run on the U.S. $100 bill. A scramble to mollify concerns finally convinced people that the panic was unjustified, but the episode was a shock to law enforcement and overseers of the currency. And not just in Taiwan, although there was strangely little public discussion of the matter in the United States, other than testimony from one or two officials who had been closely tracking the supernote situation.

  A run! When stocks of Bear Stearns crashed on March 13, 2008, the details of the firm’s financials mattered little. What mattered that day was the rush—the herd’s evaporating confidence in the stock and the contagious fear about being stuck with worthless shares. It’s not crazy to think that a few miscalculations and miscommunications in Taipei could have led to more widespread doubts about the $100 bill, and similar runs elsewhere.28

  COUNTERFEITING AND ANTICOUNTERFEITING efforts have all kinds of hidden costs. One economist who has tried to look closer at those costs is John Chant, a retired professor from Simon Fraser University in British Columbia. Canadians have an interesting relationship with counterfeiting, in large part because of a pot-smoking twenty-six-year-old computer whiz from Ontario.29 A decade ago, Wesley Weber began counterfeiting Canadian $100 bills with convincing precision and then mass-producing them. At the peak of the operation, Weber’s counterfeits were surfacing all over Canada, and even showing up in the United States and London. When the fakes became pervasive enough, people started refusing all CA$100 bills. Between 10 and 15 percent of the retailers in and around Toronto and Montreal posted notices to customers that they wouldn’t accept any CA$100s, and throughout the country people were turning away CA$50s and CA$100s because of rippling suspicions.30

  Investigators later estimated that Weber had pushed upwards of $7.7 million worth of bogus currency into circulation. By 2001, one out of every 290 notes in Canada was believed to be a fake, Weberian counterfeit or otherwise.31 Weber himself laid low—at first. Five months after he and his friends had perfected their counterfeiting technique, he still hadn’t tried to pass a single note. But his friends did, at Home Depot, at Canadian Tire, and at other local stores. No one noticed. So Weber too began to spend, a little at first, and then a lot. Before long he owned a Ferrari, BMW, two SUVs, and a Mustang convertible, as well as a slick condo in Toronto.

  By the fall of 2000, Weber was spotting his paper creations taped to cash registers at businesses around Ontario. At the same time, a friend had obtained a letter from the authorities highlighting the deficiencies in Weber’s notes, which Weber promptly set about remedying. Soon, he was literally overwhelmed with cash: $300,000 in a safe, bundles of bills stored in cabinets, and even a $100,000 block of bills stashed in the freezer.

  The whole enterprise expanded at a speed that perhaps Weber hi
mself hadn’t expected, and the success made him paranoid. He eventually decided to start selling bills in bulk to “a Middle Eastern fellow”—for twenty-four cents, and later just twelve cents, on the dollar. One night the following summer, while Weber and his crew worked away in the lakeside cottage they’d converted into a print shop, the authorities hammered on the door. Before anyone really knew what was happening, it was over. (The cops had staked out the cottage months before and installed surveillance equipment.) Weber pled guilty and was sentenced to almost six years, during which, by the way, he developed a keen interest in the stock market.

  In a country like Canada, with a smaller population and therefore fewer banknotes in circulation, Weber’s $7.7 million in fakes constituted a non-negligible amount of paper. Canada’s paper money is more vulnerable to a counterfeit-led confidence crash, compared to that of a country like the United States, which has a far larger population and volume of paper money to support it. In 2004, the Bank of Canada released a new CA$100 as part of a new line of bills. But the damage to the reputation of the country’s high-denomination paper was not so easily undone. Some stores closest to the epicenter of Weber’s operation still won’t take CA$100 bills, and in 2011 the Canucks rolled out yet another one-hundred-dollar bill.

  One way to consider the myriad costs of counterfeiting, says economist Chant, is to think about inflation. If I hold money, inflation takes some of its value away and transfers it to people who hold debt. Why? At the end of the year, the value of their debt has gone down, while the value of my money in hand has also gone down. The role of a central bank is to take precautions against this decreasing value. “Inflation at high rates erodes belief in the acceptability of the currency. If counterfeiting is rife, it too can be destructive to that same faith,” Chant told me. The rub with counterfeiting is that acceptability can suffer a blow even if the only thing that is rife is overblown concern about counterfeiting, as was the case in Taiwan.