Looking back through history we can note that currency is something the world has relied on for centuries, from ancient currencies, like the cowry shell, to modern-day currencies like bitcoin. Fake currency, i.e. counterfeit money, has existed just as long. In the beginning, real currency took other forms. These forms were often mimicked or altered to suit the needs of those guilty of counterfeiting. Counterfeiting is not a victimless crime. As it makes its way into the markets, fake money destroys the value of legal tender, eroding the purchasing power and wealth of citizens.
Early Native Americans used shells known as wampum to trade amongst themselves and with the Dutch, who settled Manhattan. Coins were scarce in the early colonies. Consequently, the Dutch traders adopted wampum as a coin substitute. The strings of shells were portable, and didn’t spoil like other commodity money such as corn and fish. Wampum quickly became the preferred currency used by the colonists. However, problems developed with the use of wampum as money. Having no intrinsic value, anyone could collect shells and produce their own currency. Blue/black shells were more rare and therefore considered more valuable. Counterfeiters would dye the white shells blue/black and trade them at the value of the higher quality shells. Attempts were made to standardize the value of wampum but poor quality beads flooded the market causing oversupply and the value of wampum as a form of payment waned.
As the colonies grew, currency shifted from shells to foreign silver and gold coins imported from Europe. There was no standard national currency. The value of a coin was determined by its weight in gold or silver. This was a reliable way to determine their value at first. However, counterfeiters then took up shaving coins. They would clip off tiny pieces of precious metal, keeping it for themselves, and then pass the lighter, devalued coin to an unknowing merchant or banker. But over time, the weight of the coins were drastically reduced. In 1792, the Continental Congress passed the Coinage Act, establishing the U.S. Mint to set standards for weight, design, and metal composition for all coins in circulation. The newly designed gold and silver coins were given ridged edges, making shaving and clipping easier to detect. To this day, U.S. coins, though no longer minted in precious metals, have ridged edges.
Early paper money was equally as problematic. Paper money was issued as early at 1690 by the Massachusetts Bay Colony. The governments of the thirteen colonies had issued their own notes by the time of the Revolutionary War. Knowing that loss of confidence in currency can have serious economic and political consequences, the British government tried to suppress and undermine the American economy by flooding the colonies with counterfeit Continental bills. In an effort to thwart counterfeiters, Benjamin Franklin invented a printing process using actual leaf castings. The intricate veins of the foliage were printed on the back of the bills from a lead mold. Along with the fine detail of the leaf printings, which made the bills nearly impossible to reproduce, Franklin misspelled “Pennsylvania” to confound would be counterfeiters. He assumed, a forger would correct the spelling on their own fake money, believing that the real bill was fake and created by a less literate counterfeiter.
After the Revolution, the States chartered private banks to print their own form of money. Banks printed notes of credit that promised to pay the bearer the note’s face value on demand. The paper notes were backed by gold and silver held in the vaults of the issuing bank. As the number of state banks grew, so did the variety of paper currency flooding the markets. Counterfeiters easily joined in the printing frenzy. To make matters worse, the state banks soon began to overextend their credit by issuing bank notes that exceeded their deposits. The money supply expanded sharply creating inflation, instability and frequent bank runs resulting in depositor losses. The era of free banking ended in 1863 and 1864 with the passage of the National Banking Acts. One mandate of the Acts was to create a uniform national currency which would discourage counterfeiters and make legal tender easier to identify.
Anti-counterfeiting techniques and materials have improved considerably in modern times. Deterrent features in currency design now include the use of combined colors, security threads,variable dot patterns and transparent hologram images. Multiple features and adding complicated steps to the printing process may discourage counterfeiters for a while, but criminals will eventually overcome the new deterrents making fake bills harder to detect than ever.
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