FOR IMMEDIATE RELEASE TREASURY DEPUTY ASSISTANT SECRETARY FOR
FEDERAL FINANCE ROGER L. ANDERSON HOUSE BANKING AND FINANCIAL SERVICES
SUBCOMMITTEE ON GENERAL OVERSIGHT AND
INVESTIGATIONS I appreciate the
opportunity to discuss the Treasurys audit plan for
studying the uses and counterfeiting of U.S. currency overseas. I
have worked closely with the other members of the ACD Steering
Committee to produce this plan, and we have already started to
implement it. As Under Secretary
Hawke mentioned, two of the primary reasons for the successful
introduction of the Series 1996 $100 note were our comprehensive
worldwide public education campaign and the coordination with our
counterparts overseas. An especially important element in each of
these areas was our International Currency Awareness Program or
"ICAP." This program organized joint Treasury, Secret
Service, and Federal Reserve teams to visit selected regions
throughout the world to meet with U.S. embassy, foreign
government, financial institution, and law enforcement officials
to discuss the uses, flows, and counterfeiting of U.S. currency.
Our teams made six trips over a two-year period to South America,
Russia and the NIS, Southeast Asia, Western Europe, and the
Middle East. These trips enabled
us to gain valuable information about the nature of U.S. currency
usage and counterfeiting overseas. In addition, we were able to
introduce the currency redesign program, assess the needs for our
education campaign, and insure that there exists an adequate
distribution network for the issuance of the new notes. Along the
way, we established or augmented our working relationships with
various entities involved in the overseas U.S. currency market. The Antiterrorism
and Effective Death Penalty Act requires us to audit the
international use and
counterfeiting of U.S. currency every three years. We have used
our experience from ICAP as well as the past work of the ACD
Steering Committee as a foundation for our Audit Plan. This
experience is particularly relevant because the questions that
the Act requires the audit to answer are some of the same
questions that the ACD Steering Committee has examined and
continues to examine on a regular basis. These are: o
What are the uses and holdings of U.S. currency
overseas? and o
What is the Treasurys estimate of the
amount of counterfeit U.S. currency that
circulates outside of the United States each
year? We began to
formulate our plan early on. In fact, as we worked with your
staff, Mr. Chairman, to help draft the Act, we determined that
our ICAP experience would provide a good starting point. The
objectives of the audit plan, however, are decidedly different.
Rather than introducing the new currency and insuring adequate
distribution channels, we are now focusing more on the uses of
U.S. currency and the quantities of genuine and counterfeit U.S.
currency that are in circulation around the world. Before finalizing
our plan, we sought comment from GAO to insure that our plan
provided all necessary information and detail. Unfortunately,
after providing a draft of the plan to GAO, we were informed that
they would be unable to give us comments because of a potential
conflict of interest. At your request, Mr.
Chairman, GAO then commented formally on our plan, and we
responded to their comments in an addendum to the plan. I have
attached as an exhibit to my testimony a chronology of the
development of our audit plan. As we discussed in
our plan and in the addendum, the Steering Committee is using a
variety of information to try to answer the Acts questions.
The best sources of
information to answer the first question are our surveys. Since
last September, we have conducted two surveys in Southeast Asia
and one in South America. Furthermore, we have scheduled four
subsequent surveys on an approximately quarterly basis to include
Turkey and Central Asia, Eastern and Central Europe, the
Caribbean and Latin America, and India and Pakistan before we
submit our first audit report in the fall of 1999. These trips
greatly augment our understanding of currency movements outside
of the wholesale banking sector. The most important
and comprehensive information to answer the second question comes
from the Federal Reserves currency shipment and receipt
data. From these data, the Fed is able to trace flows of U.S.
currency throughout the world and identify the country of origin
for deposits of both genuine and counterfeit U.S. currency. In a statement to
this Subcommittee last year, Theodore Allison, Assistant to the
Board of Governors of the Federal Reserve System, described the
Federal Reserves currency processing operations. I wish to
highlight today three points from that statement: o
First, the Federal Reserve receives a sufficient
quantity of currency to have an up-to-date and
reasonably accurate view of the notes in
circulation. For example, during 1995 the Federal
Reserve received from circulation, and therefore
performed a note-by-note inspection of, a
quantity of $100 notes equal to 116 percent of
all of the $100s estimated to have been held
within the United States and 13 percent of the
$100s held outside the country. o
Second, the levels of counterfeit $100 notes
detected during 1995 were very low -- less than
one one-hundredth of one percent (.0075%) or 75
counterfeits in every one million $100 notes
inspected. Deposits of $100s at the Federal
Reserve that originated outside the United States
had a lower proportion, about 55 counterfeits in
every million notes processed. o
Third, the successful passing of counterfeits,
within the United States and abroad, is so small
as to be insignificant from a macroeconomic
perspective, and has no discernable effect on
public confidence in U.S. currency. I can now update Mr.
Allisons numbers. In 1996, the percentages of domestically
and internationally circulating $100 notes that the Fed inspected
increased to about 117 percent and 17 percent, respectively. Our
window on counterfeiting therefore became even better last year,
particularly in regard to counterfeits circulating outside the
United States. That window showed, during 1996, a slight decline
in counterfeit $100s in circulation, as the detection rate fell
from about 75 counterfeits per million notes processed (.0075%)
to about 62 counterfeits per million (.0062%). We consider the data
from Federal Reserve currency processing operations to be
reliable indicators of counterfeiting activity for several
reasons: o
The data are broadly based. The Reserve Banks
made cash payments during 1996 that were destined
for, and received deposits originating from, more
than 80 countries. o
The sample is very large. The Reserve Banks
received and were thus able to inspect 17 percent
(or one of every six) of all $100 notes in
circulation outside the United States during
1996. o
Federal Reserve figures are similar to other
available data. The incidence of counterfeits in
notes received by Federal Reserve currency
operations is very similar to that found by major
wholesale commercial banks. During 1996, the
Federal Reserve improved its method of collecting data on
banknote shipments to and from locations outside the United
States. For cash payments by the Reserve Banks to depository
institutions that intend to forward the banknotes to branches or
customers abroad, participating institutions are now asked to
identify each ultimate country of destination. Likewise, for cash
deposits at Reserve Banks, participating institutions are asked
to identify, for each 100-note strap of banknotes, the country
from which the deposit originated. As a consequence, the
usefulness of the Federal Reserves operating data in making
judgments about the geographic distribution of U.S. currency
outside the United States has been enhanced. Similarly, the
Feds ability to provide to the Secret Service information
on the country of origin of any counterfeits detected in deposits
originating abroad improves the Services understanding of
the nature and extent of counterfeit U.S. currency that has been
passed in various parts of the world. As a result, we
believe the Feds data allow us to derive reasonable
estimates of the amount of genuine and counterfeit U.S. currency
that circulates outside of the country at any one time. Of course, these
estimates assume that the sample of currency the Fed receives
each year is representative of the entire stock of U.S. currency
in circulation. We have used the ICAP and subsequent overseas
audit surveys to assess the validity of that assumption. We have
focused particularly on this issue since our audit surveys began
last fall. To date, without exception, the evidence has indicated
that the sample is representative. We have seen nothing to
suggest nor have we been given any plausible explanation for a
process by which a significant amount of U.S. currency,
counterfeit or otherwise, can circulate for an extended period of
time without entering the banking system and eventually the
Federal Reserve. While it is
impossible to know at any one time the precise amount of
counterfeit currency in circulation, we are confident that the
information we review on a continuous basis allows us to
ascertain the magnitude of the counterfeiting problem. This
information clearly shows that the counterfeiting of U.S.
currency remains a de minimis economic problem, with the odds
being minuscule of any particular individual actually incurring a
loss due to counterfeiting. Nevertheless, we take counterfeiting
seriously, as evidenced by the Secret Services
zero-tolerance approach to this crime. Before concluding, I
would like to mention some additional things we have learned from
ICAP and the overseas audit surveys. First, what we have
found consistently, in addition to a wide variety of reasons for
why people use U.S. currency, is that those individuals serve as
an effective front line against counterfeiting. Foreign users of
our currency are keenly aware of its features, and cash handling
professionals are quite adept at detecting counterfeits. As the
figures presented above illustrate, the counterfeit detection
rates in foreign-origin currency deposits at the Fed have
consistently been below the detection rates in domestic Fed
deposits. Second, one of the
most important benefits of these programs is the opportunity to
build and strengthen our relationships with our counterparts
overseas. This has proven to be especially important for our
introduction of newly designed currency and in countries where
official government relations are still developing. In that
regard, I can report that the Secret Service continues to work
with the State Department to meet its overseas staffing needs.
Over the past four months, the Service has received approval for
five additional overseas positions. Third, even though
most of the people with whom we meet are anxious to provide any
information they can, the vast majority do not track closely or
focus upon U.S. currency usage in their own countries.
Furthermore, most are under no obligation to provide us with
information. Nevertheless, we believe that the vast majority give
us the best information available. In summary, the news
that we have to report is good. The introduction of the $100 has
gone well; we are making preparations for the issuance of the
newly designed $50 this fall and the $20 next year; we are well
into the overseas currency audit process; we continue to build
productive relationships with our counterparts overseas; and the
information we have gathered thus far has held up in support of
our estimates of worldwide counterfeiting levels. Nevertheless,
we will continue to look critically at all of the available
information. We will also
continue to look forward and take steps that will allow us to
remain ahead of the counterfeiting threat -- a threat that will
no doubt be with us for as long as our currency serves as the
standard for stability and acceptability throughout the world. TREASURY AUDIT PLAN
CHRONOLOGY April 24,
1996 Passage of Antiterrorism and
Effective Death Penalty Act of
1996 September
1996 First Audit Survey --
Southeast Asia November
5, 1996 Submission of Audit Plan
to Congress January
1997 Second Audit Survey --
Southeast Asia April 11,
1997 GAO Report on the Treasury
Audit Plan April 15,
1997 Treasury and Federal Reserve
meet with Chairman Bachuss
staff to discuss the Addendum April 21,
1997 Submission of Treasury Audit
Plan Addendum May 1997
Third Audit Survey -- South
America
Text as Prepared for Delivery
July 10, 1997
RR-1813