Where the problem started – and why you should check carefully for counterfeit dollars

The first large-scale, deliberate counterfeiting started as the colonies began their march toward independence. The British experimented with pumping in fake currency in volume to weaken the economy and foil the attempts to achieve independence. This was the first time counterfeiting had been used as a weapon of war.

Until the 1780s, paper money had always been backed by gold. This made counterfeiting less popular. The first experiment with “pure paper” money was driven by the exigencies of war. The Continental paper money issued during the Revolutionary War (1775-1783) was not backed by a physical asset such as gold or silver. It quickly lost value to zero shortly after the war, simply because people stopped accepting it as payment for goods and services.

The origin of the saying “not worth a Continental”, and the phrase “I don’t give a Continental” does not mean what you might think.Continental currency was soon replaced by the adoption of a stronger currency, the original U.S dollar, but in many different forms. There were eventually no less than six different types of dollar bills in circulation. All these paper currencies, however, were convertible to gold “on demand”.

The next experiment in relaxing the gold-backing for paper money was again driven by the exigencies of war, but this time it was the Civil War of 1861–1865. Under President Lincoln, a paper dollar not exchangeable for gold was issued as “legal tender” in 1862 as an emergency war measure. Some people feared, with good reason, that it would create a financial calamity. However, thousands of troops had to be paid and equipped; weapons, everything from bullets to cannons to ironclad warships, had to be built. The fledgling Union did not have the gold to finance this. They went right ahead and printed dollars anyway, initially some $400 million worth of them. If every one of the new dollar notes had been presented for conversion to gold, the Union government would have been broke many times over.

The new Federal Dollars were printed in green ink on the back, and became known as “greenbacks” - a derogatory term at the time. One version of origin of the name is that people said the money had no backing other than the green ink on the back. Also called “funny money”’, the value of these notes gyrated wildly with military wins and losses, inflation soared as high as 75%, and in 1863 just before the Gettysburg Address, a $100 greenback was worth only $35 in gold. To read more on the Civil War and Greenbacks, check out The Gold Standard Now.

The ironic thing about greenbacks is that they are actually totally un-backed.

By some unprecedented miracle, the greenback dollar survived, and the notion of a paper currency with an illusory value began to take root and become acceptable to the public.

In July of 1929, the US Fed decided to replace the physically large notes circulating with smaller notes, closer to the dollar note size now used. Originally intended to save on paper cost, the change unexpectedly created another revolution in US paper money. Just three months after the changeover, the stock market crashed completely, and the Great Depression began. The great crash was not unrelated to the fact that the economy had been running on un-backed dollars since the Civil War.

The six types of dollar currency then circulating were Gold Certificates, Silver Certificates, National Bank notes, United States notes, Federal Reserve notes, and Federal Reserve Bank notes. Each system had its own denominations. There was an unmanageable hodgepodge of over 50 different dollar bills types and values. A counterfeiter dream.

Soon after the Civil War, it was estimated that, of the nation's entire currency in circulation, no less than one third to one half was counterfeit. Four years of intense combat had left 620,000 to 750,000 people dead and much of the country’s infrastructure destroyed, especially the transportation systems, railroads, mills and houses. Counterfeit money posed a major threat to the economy, and financial disaster loomed. There was a very strong reaction by the Federal Government, the effects of which are felt to this day. Nowadays even though the actual number of fake bills in circulation in the USA is very small, according to the US Treasury, the time and effort, not to mention money, spent on combating fake dollars is still disproportionately large.

In 1985, an ad-hoc department impressively named the “Secret Service” was founded, with reducing counterfeiting as its primary mission. While this helped tamp down massive counterfeiting, there were some notable exceptions, for example:

How many counterfeit bills are in circulation today?

The Federal Reserve Bank estimates that less than 0.01% of all U.S. currency in circulation worldwide is counterfeit. That amounts to $85.4 million in forged currency compared to the $8,500 billion real bills circulated throughout this country, according to the U.S. Secret Service. So the chances of finding a counterfeit bill are relatively small; only one fake in 10,000 bills, on average.

The best defense against a future flood of counterfeit currency is an educated and aware public. Tell your friends about the seven steps, and encourage them to download and read this article and other reliable anti-counterfeiting articles. It’s important. Genuine and dependable paper currency is key to the financial security of the United States.