When is a Counterfeit not a Counterfeit? We Need to Know!

Counterfeiting is a sensitive subject. Without counterfeiters most of us would not have a job, but central banks have a difficult line to walk. They need the public to check their banknotes, but equally they need the public to trust and have confidence in their currency.

Added to that, there is a significant challenge defining what is a counterfeit and what is a good counterfeit. This is also, possibly, a topic about which there is the least information.

The implications of counterfeiting go to the heart of an economy. If any country experienced mass counterfeiting, it could cause economic chaos, which is amplified if cash is the prevalent means of payment. If there was mass counterfeiting of the US dollar or another international currency, then that economic chaos would cross borders with a much more significant impact. It is fair to say, therefore, that confidence in any country’s cash is of paramount importance.

Why least information? Well, one good reason, and one that is often quoted by central banks, is user confidence. A focus on counterfeits could lead to the public losing confidence in their currency. As a result, central banks seldom openly discuss counterfeiting. Police forces may take localised action but only if the situation is serious enough, or if it is being widely reported in the media, does a central bank (or government authority) make a public statement.

Some central banks publish how many counterfeits have been discovered each year. This is usually restricted to a report by denomination expressed as the number of counterfeits per million notes in circulation, the parts per million (PPM) figure. Generally, these are counterfeits removed from circulation during sorting as part of the cash cycle, or otherwise found in circulation. What is rarely reported are the number of notes seized by police or other authorities that never make it into circulation.

What is not reported is the quality of these counterfeit banknotes. The raw number does not tell us if the counterfeit was simple, a fake note created for use in a film (so-called prop money), or complex, only including machine-readable features to pass as genuine in a cash acceptance machine or a convincing simulation.

To give an example, as noted in a recent webinar by the Bank of Canada on its transition to polymer, some 60-70% of its counterfeits are printed on paper. Which begs the question – should these (along with, say, prop money) even count as counterfeits?

It should also be noted that the PPM figures do not represent the number of counterfeits circulating at any one time – a large number could be found and removed from circulation, while at other times no counterfeits may be in circulation. It provides a snapshot of a given period of time but no sense of the real risks. It gives a highly simplistic picture of the situation.

The advantage of the PPM figure is that it is easy to explain and easy to calculate. And allows comparison between countries. But its shortcomings mean many experts dislike it.

The banknote industry needs more than the numbers of counterfeits, whether passed or uncirculated. To develop better security features or to manage the cash cycle, the industry needs an analysis of the quality of the counterfeits and the trends over time.

Whether counterfeits are simple or complex, central banks need to know which substrates, designs, security features or technologies are being counterfeited, how and how well, and most importantly, are the good counterfeits limited in number or from only one source or is the problem widespread. Which designs and features are showing most resistance with only very few examples or even none at all? Have new counterfeiting techniques been used? Are the counterfeiters sharing knowledge around the world?

INTERPOL plays a vital role but it has limited resources. One suggestion to increase the industry’s knowledge of counterfeits could be to fund a service from INTERPOL to analyse all counterfeits and provide this information to industry parties involved and authorised to receive it. This information could be financially sensitive, but just because it is sensitive and difficult to achieve does not mean it should not be done.

In the great scheme of things, currency counterfeiting is not a problem. The losses caused are a drop in the ocean compared with those caused by fraud in electronic and digital payments, and huge progress has been made in recent years in bringing down the levels. Again, using Canada as an example, some 15 years ago its counterfeit ratio was over 400 PPM. Now it’s less than 10.

But while the financial losses may be small, the consequences of the loss of confidence in currency could be huge. Counterfeiting is a universal, continuous challenge, a constant competition between criminals and society. The more central banks and the industry can work together to define, standardise and analyse counterfeits, and share their challenges and successes with one another (even if not with the public), the better.