01 March 2000
(Much of U.S. currency outside U.S., counterfeiting small)(1705) A new report estimates that 50 to 70 percent of the $500,000 million in U.S. currency outstanding is held outside the United States, but the amount of counterfeiting of U.S. notes abroad is proportionally no larger than that found inside the United States. The report, "The Use and Counterfeiting of United States Currency Abroad," released February 28, was prepared by the Treasury Department and the Federal Reserve Board as a comprehensive review of the international use and counterfeiting of U.S. currency. The U.S. Congress requested the report. The report said that the "lion's share" of the overseas U.S. currency is in developing countries, with probably 60 percent of it distributed about equally between the Western Hemisphere, Africa and the Middle East and Asia. The remaining 40 percent is held in Europe and the countries of the former Soviet Union and their neighboring trading partners. The likelihood of a counterfeit dollar being found in a batch of U.S. currency abroad is quite small, on the order of one or two counterfeits in 10,000 notes, about the same ratio as found inside the United States, the report said. "Worldwide counterfeit currency detection capabilities appear to be high," the report said. Clerks at most commercial banks and money exchangers "appear to be able to detect counterfeit U.S. currency by hand examination ... the most common and effective method," it said. The report also outlined efforts of the U.S. Secret Service, charged with protecting the integrity of U.S. currency overseas, to help detect and deter foreign counterfeiters. The newly designed U.S. currency notes, which were introduced beginning in 1996 with the new $100 bill, have been much more resistant to counterfeiting, the report said. A .PDF version of the report can be downloaded from the Internet at: http://www.bog.frb.fed.us/boarddocs/rptcongress/counterfeit.pdf. Following are terms and abbreviations used in the text: -- PL - Public Law -- billion equals 1,000 million. Following is the text of the executive summary of the report: (begin text) Executive Summary This study reports the results of an investigation of the use and counterfeiting of U.S. currency abroad. The Treasury and the Federal Reserve conducted the investigation pursuant to section 807 of PL 104-132, the Antiterrorism and Effective Death Penalty Act of 1996. The study extended the work of the International Currency Awareness Program (ICAP), which was developed in part to aid the March 1996 international introduction of the new-design 1996-series $100 note. The investigation has established new sources of information on the international use and counterfeiting of U.S. currency. Among these sources are high-level contacts in various foreign banking and law enforcement institutions, which have permitted the Federal Reserve and the Treasury to establish new working relationships and channels for the timely transmission of information. Findings Regarding Currency Abroad Foreigners hold U.S. currency for the same reasons that many once held gold coins: Dollars are a secure store of value when the purchasing power of the domestic currency is uncertain or when other assets lack sufficient anonymity, portability, divisibility, liquidity, or security. As a safe asset in an unpredictable world, dollars often flow into a country to displace part of the domestic currency during periods of economic and political upheaval and then remain there long after the crisis has subsided. Estimates by the Federal Reserve suggest that at the end of 1998, 50 percent to 70 percent of the $500 billion in U.S. currency outstanding, or $250 billion to $350 billion, was held outside the United States. Because currency can quickly move throughout the world, often without being detected, the determination of its location on any occasion is extraordinarily difficult. Nonetheless, it is clear that the lion's share of overseas currency is in developing countries. We estimate that about 60 percent of U.S. currency held abroad is distributed about equally among three regions of the world: the Western Hemisphere, Africa and the Middle East, and Asia. The remaining 40 percent is held in Europe and in the countries of the former Soviet Union and their neighboring trading partners, such as Turkey. The circulation of U.S. currency overseas provides benefits to both the United States and the foreign users: U.S. taxpayers gain by effectively receiving an interest-free loan in the amount of currency held overseas. Foreign dollar holders benefit by acquiring an asset that is liquid, secure, and stable in value, characteristics that are often unavailable in their own country's currency during and after periods of turmoil. The Introduction of the 1996-Series New Currency Design (NCD) A new currency design was introduced in 1996, beginning with the $100 denomination. The new design incorporated counterfeit-resistant features that make it easier for dollar users to authenticate the notes without special equipment. The incidence of counterfeiting of the new-design notes is dramatically lower than that of the older-design notes: Among the pre-NCD $100s in the first half of 1999, the Federal Reserve Bank of New York detected 166 counterfeits per million notes processed, but among the NCD $100s in that period, it found only 20 counterfeits per million notes processed. An education campaign to apprise the international market of the new currency design and the no-recall policy on older-series notes was broadly successful. As a result, 1996-series and pre-1996-series notes are widely accepted in virtually all markets. Findings Regarding Counterfeiting The international popularity of the U.S. dollar has also made it a popular target for counterfeiters. The likelihood that a counterfeit note will be found in a batch of otherwise genuine overseas notes, however, is generally quite small, on the order of 1 or 2 counterfeits in 10,000 notes, about the same ratio as is found inside the United States. Maintaining this advantageous state of affairs requires vigilance. Worldwide counterfeit currency detection capabilities appear to be high. The audit teams found that at most of the commercial banks and money exchanges, clerks appeared to be able to detect counterfeit U.S. currency by hand examination of the notes, the most common and effective method. The U.S. Secret Service routinely arranges training programs on the detection of counterfeit currency in regions with significant counterfeiting activity. Since its inception in 1865, the Secret Service has been responsible for protecting the integrity of U.S. currency abroad: Whenever a counterfeit note is detected or an arrest made anywhere in the world, the Secret Service must be able to respond immediately to develop investigative leads. Because that response will usually involve cooperative efforts with the overseas law enforcement community, the Secret Service must maintain an adequate international presence if it is to keep the international counterfeiting threat at bay. The Secret Service has found that the strategic placement of overseas personnel promotes more aggressive police operations in the field, where agents are able to respond more promptly and consistently. In the longer run, the relationships that develop from such day-to-day interactions encourage the Secret Service's law enforcement counterparts to increase the priority given to the investigation of counterfeiting. In locations where permanent placement is not feasible, the Secret Service deploys task forces to target counterfeiters. Substantial pools of counterfeit notes cannot circulate undetected for very long. Extensive data-gathering, discussions with currency dealers, observation of currency in circulation worldwide, and economic analysis all indicate that notes are exchanged sufficiently often that they regularly move through financial institutions and exchange houses, which we found to be generally capable of detecting counterfeits. Moreover, although some currency is held "in mattresses" as a precaution against unforeseen events, at least a small share of these notes is always being moved in and out of general circulation. As a result, notes sampled in cash deposits at Federal Reserve offices reflect notes that have been in normal circulation along with notes that recently left the "mattress." Innovations to Combat Counterfeiting The Secret Service is piloting a web site that law enforcement agencies and currency handlers can use to report counterfeits. When fully implemented, the web site will provide a mechanism for the Secret Service and the Federal Reserve to track worldwide counterfeiting. The Federal Reserve Bank of New York has created a new means of distributing currency overseas, called extended custodial inventories (ECIs). The ECI program also provides an efficient mechanism for the international markets to recirculate fit new-design notes and improves the repatriation rate of the older-design notes. As a result of the ICAP trips and the establishment of ECIs in Europe and Asia, it is now possible to determine which cities and countries are the first to receive counterfeits in the wholesale distribution chain. This new intelligence permits the Secret Service to respond more quickly and strategically to emerging threats. Conclusions and Recommendations The audit program of the Treasury and the Federal Reserve has established important new sources of information on the use and circulation of genuine and counterfeit U.S. banknotes abroad. In addition, relationships have been developed with the banknote trading communities and law enforcement agencies that allow the Federal Reserve and the Secret Service to work more effectively in the international arena. The Federal Reserve and the Treasury believe that these benefits will grow as the program continues. The Secret Service will continue to draw upon the valuable information arising from the joint audits to evaluate its international strategy. The extended custodial inventory program has yielded more up-to-date information on overseas counterfeiting and has encouraged the repatriation of old-design notes. Thus, it should be continued and expanded. Given the success of the new-design note in deterring counterfeiting, strategies to accelerate the repatriation of old-design notes should be considered. The public education campaign contributed to the smooth reception of the new-design 1996-series notes. In the future, dissemination of information on any new currency design -- especially training and educational material for both cash handlers and the general public -- should reach the international markets well ahead of the actual notes. For the introduction of the remaining 1996-series denominations ($10s and $5s) in the spring of 2000, the international emphasis should be on regions where these denominations predominate, such as Latin America and the Caribbean. (end text) (Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)