How much fake money is in circulation?

Most people associate the United States Secret Service with the protection of the President and others whose continuing well-being is deemed to be in the national interest.   Abraham Lincoln did not, however establish the Service for protection but, rather, to fight currency counterfeiting that ran rampant during the Civil War.  Historians estimate that one thousand out of approximately thirteen hundred banks then in operation were the victims of the Confederacy’s attempt to destroy the Union economy by circulating counterfeit money.

So, is counterfeiting as big a problem today as it was during the Civil War?  No.  The Federal Reserve estimates that as of February 29, 2012 there was approximately $1.09 trillion in circulation, of which $1.05 trillion was in Federal Reserve notes.  Up to two thirds of U.S. currency in circulation worldwide is held outside of the United States, so approximately only $303 billion circulates domestically.   Let us assume that the entire amount of $261 million of counterfeit currency seized by the Secret Service in 2011 was removed solely from circulation in the United States.  If so, it means that less than 0.086% of currency circulated in the U.S. in 2011 was fake money ($261 million/$303 billion) .  Furthermore, authorities reported that 6.5 counterfeit banknotes are passed as real currency out of every 1 million banknotes in U.S. circulation.  Again, this hardly seems like a significant sum and certainly not one that would generally signal a cause for alarm, right? 

Not really.  First, remember that these figures represent only currency that has been confirmed as counterfeit and removed from circulation.  It is hard to measure the actual extent of counterfeiting because detection has become increasingly difficult.  Technology has placed the ability to produce passable counterfeit U.S. bills within the reach of individuals who can afford a good PC, high definition scanner and high-quality color laser printer.   With a little bit of creativity, some attention to detail and access to special paper that is readily available, virtually anyone can produce fake money.

Still, with the reported numbers as small as they are, why should we worry?  Several reasons.   Understand that counterfeit currency devalues real currency as goods and services paid for by fake money are essentially provided for free.  Second, counterfeit currency is a mechanism by which drug cartels, organized crime and even terrorist  groups generate revenue, exchanging counterfeit bills for real ones.  Third, if your business receives counterfeit currency, you incur a loss.  Why?  Because you won't be able to exchange the fake money you took in for the real thing with the U.S. government.  You will be stuck with money literally not worth the paper it is printed on. 

Further proof that counterfeiting is a significant problem is the fact that the Federal Reserve, the Treasury Department, Bureau of Engraving and Printing and the Secret Service all keep a continuous lookout for counterfeiting threats and periodically redesign U.S. currency to foil counterfeiters.  Since 1996, the Treasury has introduced a series of Federal Reserve notes with enhanced security features designed to make them harder to counterfeit. These features include the introduction of a larger, slightly off-center portrait that incorporates more detail and additional visual markers that are extremely difficult to reproduce. 

The Secret Service expects the private sector to participate in the battle against counterfeiting.  You can do so by training your employees to detect fake money and by utilizing counterfeit detection devices.  These devices vary in how effective and sophisticated they are. What they have in common, however, is the message they convey that you are serious about doing your part to minimize the counterfeiting threat to our economy.