The End of Money

by David Wolman

  But the true costs of counterfeiting only start with the losses incurred by people who unwillingly accept fakes. Chant once tried to examine the costs associated with efforts to prevent counterfeiting. One such cost falls to businesses, organizations, and government agencies that have to take steps to avoid accepting counterfeits, which they more or less all do. Casinos, for example, have counterfeit detection technology on site. Staff at currency exchanges, banks, and anyplace else where paper money is frequently handled need to be trained to avoid taking phony bills. All of that costs money.

  More nebulous, but much greater, is the cost governments incur to battle the enterprise of counterfeiting—the “hidden costs of suppressing it,” says Chant: expensive banknote design, inspecting circulating currency, reissuing new series, and prosecuting and imprisoning counterfeiters. Yet to arrive at any kind of meaningful figure for these costs, says Chant, you would have to add up all the prevention costs at the treasury, law enforcement agencies, central bank, private sector, and so on. “Maybe someone has done a cost-benefit study, but I don’t know of any. If they exist, they will be buried in confidential files somewhere.”

  BY THE EARLY 2000s, as supernotes surfaced in more and more countries, overseas banks began asking the U.S. Treasury what was being done to remedy the situation. The supernote had become an embarrassment for Washington, and at some point a dollar redesign became inevitable.32 Not that there were many options; state-sponsored counterfeiting is a diplomatic stumper. What do you do—order airstrikes on the presses? Send in Blackwater?

  Yet a reissue doesn’t necessarily solve the problem. In fact, it brings a whole new set of risks. Think about it from the perspective of the central bankers and anticounterfeiting officials. Frequent reissues can boost confidence by showcasing the issuers’ commitment to reliable paper money. On the other hand, there’s no better time to move your product—to launder your counterfeits—than when the government issues a new series, because that’s when the public is most confused about what’s legit. Not that I would know if I was holding a fake or not. Even talking about redesigning currency can create doubt. Yet if enough counterfeits exist, or if those in existence are getting enough press, redesign is the only reasonable way to deal with the scourge of doubt.

  On April 21, 2010, in the Cash Room at the U.S. Treasury building in Washington, D.C, the captains of the Federal Reserve, U.S. Treasury, U.S. Secret Service, and the Bureau of Engraving and Printing gathered with bankers, journalists, and economic security types to unveil the new $100 banknote. (Six months later, the release would be delayed due to that gazillion-dollar printing snafu.) The event—pageant, really—received obliging media coverage but wasn’t exactly page-one material.

  The unveiling was an exercise in conjuring faith as carefully choreographed as a mega-church service. “Individuals, businesses and governments around the world put their confidence in our currency,” said the secretary of the Treasury, Timothy Geithner. “They use the dollar because they know that it is backed by the most sophisticated anticounterfeiting technologies known to men, that the design can’t be stolen or replicated.”33

  Washington’s top financial wizard was dutifully shoveling it. Making money always has been, and always will be, an endless arms race. Outsmarting counterfeiters, like terrorists, is impossible. The security wizardry moves an inch, and counterfeiting soon follows, and on and on.34 “You know, we just can’t rest,” said Douglas Crane, the vice president of Crane & Co., in a radio interview a few years ago. The Massachusetts-based firm is the Bureau of Engraving and Printing’s sole supplier of the souped-up paper used to make our cash supply, and pressure from counterfeiters is great for Crane’s business.35

  Federal Reserve Chairman Ben Bernanke was next up after Geithner. He gave a speech full of the obligatory blandness that is supposed to keep us all calm about the state of our financial affairs: “A sound currency is the bedrock of a sound economy,” he told the crowd. “Therefore, the United States government must stay ahead of counterfeiters and protect the integrity of our currency.”36 What I couldn’t help but wonder while watching the video of the event is whether anyone present found this trumpeting the currency’s integrity a bit disingenuous, considering the scope and scale of the nation’s fiscal woes.

  In a video about the redesign posted on a government website, a crisp new $100 bill turns slowly in space to the sound of a crescendo-ing anthem of revolutionary war-era drums, horns, and strings. As Ben Franklin’s dimply visage moves across the screen, security features are announced in all-caps: “3-D SECURITY RIBBON,” “BELL IN THE INKWELL,” “PORTRAIT WATERMARK,” “SECURITY THREAD,” “COLOR-SHIFTING 100.” At the end of the demo, this solemn guidance: “The new $100 note. Know its features. Know it’s real.”

  Good luck with that. The security thread, which shines pink under UV light, is more than a decade old, yet most people still don’t know what it is. Watermarks, those shadowy images that appear when you hold a note up to the light, have been around for longer, so they’ve become more recognizable. That’s not to say, however, that anyone other than a Secret Service agent could distinguish between a fake and a real one, and crooks have had decades to practice forging them. Neuroscientists have even demonstrated that when it comes to banknotes, most people simply can’t distinguish real from fake.

  If most of us are unfamiliar with, and rarely look for, the old features, what’s the likelihood that we’ll really learn and want to inspect for the new ones? After all, turning in a counterfeit hurts no one worse than yourself because the authorities will just take it. You’re better off passing it on to someone else, although I say that from a purely economic perspective, and not as an accomplice to some future passer’s crime.37

  The same is true in most countries. In India, I met a man who received a fake 500-rupee note (worth about $11) from a bank ATM. When he turned it in, the teller ripped it in half and said, “Thank you. Next!” If economics explains how rational people respond to incentives, surely central bankers know that the public has little motivation to be on the alert for counterfeits. Don’t ask, don’t tell is more like it.

  True, turning in a fake gives you the satisfaction of doing the right thing, assuming you believe protecting the integrity of your national currency is more important than buying dinner. If you get caught knowingly trying to pass a counterfeit, you could get hit with a fine of $15,000 or face ten years in prison. In reality, the Secret Service is really only interested in the printers. Legally speaking, though, you’re still taking a risk.

  The no-reimbursement policy is based on the premise that exchanging fakes with real notes would open the floodgates, creating an incentive to produce forgeries.38 Criminals could make bogus notes and then have someone else turn them in for real ones. Yet there is little or no evidence to support this policy; it’s merely an assumption about how we behave, and if there’s one thing behavioral economists know, it’s that people don’t behave as predicted. (Japan, which has one of the lowest rates of counterfeiting in the world, is an exception to the no-reward rule. People who turn in a fake there are eligible for an “honorarium,” roughly equivalent to the bogus bill’s value, and only if the forgery is from a batch of counterfeits not yet known to the authorities.)39

  Still, you’ve got to hand it to the Feds—or to the material scientists, really. The new $100 bill has some technological razzmatazz, especially the Liberty Bell inside the inkwell floating just beyond Franklin’s shoulder. Tilt the note and the green bell emerges from the copper-colored inkwell. Tilt the note once more and it vanishes. Pretty cool, for a piece of paper.

  So is the blue 3-D security ribbon. Microscopic lenses in the material create the effect that tiny 100s and bells are moving. A Crane consultant told me how dazzled he was the first time he saw a prototype. “It was really a quantum leap. I’m a chemist and physicist, yet I had no idea how it worked! After the explanation I understood, but still . . . amazing.”40 Tilt the banknote up and down, and tiny 100s and bells
move left to right. Tilt the paper back and forth, and it looks like the bells and 100s are moving up and down. It’s an elegant solution, pioneered by an optics engineer who, after having sold his invention to Crane, is no doubt now living the good life on a tropical island somewhere.

  The engineering is that much more impressive because this strip of optical wizardry can, at a reasonable price, be woven into the paper’s cotton fibers, and can withstand the crumpling, folding, soaking, and other physical abuse that banknotes must endure.

  Yet just how counterfeit-proof is the new $100 bill?

  Two months after the unveiling, in a spotless conference room on the eighteenth floor of a skyscraper in Tokyo’s Gotanda neighborhood, I met with a team of holography and secure documents experts at Dai Nippon, one of the world’s most famous printing firms. A man named Kenji Ueda leaned across the gray meeting table to hand me a gift card that Dai Nippon had made a few years ago for a major department store chain.

  The image was a rough outline of the continents in blue, dotted with pink, yellow, and silver crescents. When I tilted the card left to right or up and down, it looked like blue 3-D spheres moved inside the continents. The illusion of motion and depth was powerful, even though my brain knew full well it was dealing with a two-dimensional image. That card is printed with something called a “lens array”—not the microarray of the moving bells and 100s on the new C-notes, but close. And that, the Japanese experts say, is the problem.41

  “You can pass it,” Ueda said flatly, using the lingo of law enforcement. In poorly lit environments like bars, casinos, or taxis, it would be hard to distinguish between this visual gimmickry and the movement created by the technology on the new $100 bill, which means counterfeiters may use lens array to mimic the new $100, if they aren’t busy doing so already.

  The next morning, at the National Printing Bureau, Japan’s equivalent to the Bureau of Engraving and Printing, I inquired again about the new $100 banknote and “the most sophisticated anti-counterfeiting technologies known to men.” Again an engineer passed me a sample document, handing it across the table with both hands like a business card. This one was a white-and-blue polka-dotted piece of microlens paper that when tilted mimics the 3-D feature of the new $100 bill.

  He bought it at a stationery store. “They will use it,” he said, referring to counterfeiters. “I would say the motion feature is like a C or a C+.” Perhaps no one in the world can copy the nanotechnology underlying the great American 3-D security ribbon—not yet anyway. But that doesn’t mean they can’t mimic it closely enough. A counterfeiter, remember, does not aspire to duplicate. He only needs to pass off his product undetected.

  Even if counterfeiters aren’t aiming to forge the new $100 bill, they have other denominations (and older $100s) to work with. Thanks to advances in desktop color printing, forgers now have the capacity to create high-quality imitations with off-the-shelf illustration software, instead of specialized training in inset printing and lithography. Between 1995 and 2002, digitally produced fakes in the United States went from 1 percent to 40 percent of all counterfeits seized.42 By 2009, more than 60 percent of the counterfeits passed in the United States were made domestically by people using desktop technology.43 One source that I can’t name said that if we could do away with cash, most of the Secret Service caseload would vanish because the majority of agents’ time today is spent chasing and busting two-bit “meth-heads” playing around with inkjet printers.

  The banknote manufacturers and central banks have tried to engineer defenses against inkjet counterfeiting, such as color-shifting inks that aren’t available on the open market. Another defense is something called the EURion constellation, an antiphotocopying trick that consists of small marks or design items on banknotes positioned at a set distance from one another, like stars in the sky. Because image-processing software like Adobe Photoshop makes what is essentially a mathematical picture of whatever you’ve scanned or photocopied, the software can be programmed to look for these specific patterns.44

  If it detects the EURion constellation, Photoshop will abort and deliver an on-screen warning about counterfeiting laws. (Try printing the Wikipedia page on EURion and see what happens.) This seems like a victory for the guardians of paper currency, until you remember that the Internet is full of puzzle addicts and hackers. Almost as soon as EURion was detected, D.I.Y. enthusiasts began finding ways to end-around it. The system does deter many of those less sophisticated would-be counterfeiters, but it’s hardly much of a defense against more deliberative and tech-savvy operatives.45

  In the decade ahead, we’re bound to see still more innovations that will make for neat little stories about the latest banknote security tech, while failing to miss the bigger point. One engineer I interviewed wants to rig bills with a kind of scratch-and-sniff feature, except instead of producing an odor, the scratching would produce a brief glow, like the little sparks of blue you see when peeling back a piece of Scotch tape in the dark. (I can already see the snappy public awareness campaign and government videos: Light Makes Right; or maybe, No Glow = No Go.) Scientists at Dai Nippon in Tokyo are working on holograms that look like they’re straight out of a 3-D movie. Other researchers have found a way to mimic the iridescent patterns on the wings of butterflies and have already floated the idea of using this innovation for security printing.46

  The technology quest must be fun for the engineers, but I feel sorry for the cops and central bankers who have to spend their careers speaking out of both sides of their mouths. They have to make us simultaneously vigilant about counterfeits and ignorant of them. Put another way: Please keep a sharp eye out for this threat, even though it isn’t a threat because we have everything under control. Our currency is totally trustworthy.

  A public that’s blasé about the threat of counterfeiting is a public that trusts its paper money, and that’s good for the economy. It also means almost never double-checking the cash someone hands you. In many ways, the universal acceptability of U.S. dollar bills is a testament to both anticounterfeiting efforts and the economy’s relative stability. Confidence is contagious.

  How strong would our confidence be if every time we received a Federal Reserve Note, we pulled out a portable ultraviolet lamp for a quick inspection? The few times I’ve held a $20 bill up to a light to look for a security thread, I could never keep a straight face; I felt like I was parodying a movie scene. There is also something uncouth about checking a banknote, a sign that you don’t trust whoever just gave it to you.

  Agents with the Secret Service or the Money Forgery Unit at Europol don’t want citizens to be anxious about the authenticity of dollars or euros. Yet the public is also the first line of defense against forgeries. The cops want us to know the security features—for which the government, central banks, and you have, after all, paid a fortune—but they have to hope we never really find any. While confidence in the currency is good, overconfidence can morph into complacency. If a surge of fake $20 or $100 bills were to suddenly arrive on the market without anyone noticing for days or weeks, the bad money could spread so far that it would be much harder for the cops to find its source.

  There’s just no way to maintain vigilance against counterfeiters without casting doubt. This irreconcilable tension only exists, of course, as long as we use cash. Until that changes, we have no choice but to settle in and watch the theatrics and massive expenditures as the overseers of the economy try to keep us believing that nothing is wrong and everything is real.

  NO ONE CAN REALLY KNOW how much counterfeiting it takes to undermine an economy’s banknotes or, more accurately, the public’s confidence in them. Likewise, we don’t get to know how much the government spends trying to prevent that from happening. All we have is the government saying Trust us: we are spending your money wisely, and a handful of extremely secretive and rich companies telling us Trust your government: whatever they’re paying us, it’s worth it.

  Although countries like the United States, China,
Russia, and Japan have nationalized banknote production, most other countries contract with private suppliers. Even those that produce their own paper money buy materials from these companies, as the United States does from Crane. While most companies that influence our everyday lives pay untold millions of dollars to cram their names and logos down our throats, few people know the names of the firms that make some of the most ubiquitous objects in the world. And they like it that way. De La Rue in Britain, Crane in the United States, Giesecke & Devrient in Germany, Oberthur Fiduciaire in France, Securency in Australia, and a smattering of smaller ones. That’s it.

  One curiosity about the banknote business is that some of the most high-tech physical money circulates in countries that can least afford it—places like Nigeria, Bangladesh, Nicaragua, Papua New Guinea, and Kazakhstan. In the words of the trade publication Currency News: “There sometimes appears to be an inverse relationship between the vulnerability of a country’s currency and the sophistication of the new [banknote security] features it adopts.”47

  Why is this? Not because criminals are lining up to counterfeit the Bangladeshi taka or the Nicaraguan córdoba, that’s for sure. One explanation is that the manufacturers give poorer countries discounts in exchange for what equates to free advertising. The notes are mobile billboards, displaying the latest technology to central bank officials elsewhere, especially in wealthy countries. In 2010, the rotating chairmanship of the Organization for Security and Cooperation in Europe fell to Kazakhstan. In advance of this apparent honor, the National Bank of Kazakhstan wanted to do a little strutting. Because colorful, high-tech paper money is considered a sign of economic prosperity—and a lot simpler to institute than, say, an effective healthcare system—Kazakh leaders decided to go all-out on a new banknote series.