USIS Washington File

01 March 2000

Text: Report on Foreign Use, Counterfeiting of U.S. Currency

(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

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

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:

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

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

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

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

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: