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Do we need a new $100 bill?

Noting Treasury's decision to make the $100 bill a lot uglier in order to make it a lot harder to counterfeit, Megan McArdle wonders whether we should actually be that worried about counterfeit currency:

We don't use that much currency, so I'm not sure what all the fuss is about. In theory, currency counterfeiting causes mild inflation. In practice, the amount of currency that gets used in the United States is too small for counterfeiting to have any realistic impact on prices; these days, money is created not with the printing press, but in the electronic accounts of banks and the Federal Reserve.

But fraud! you will say. Well, sort of. If the stuff isn't distinguishable from real money, then who's defrauded? The people who get the money will be perfectly able to exchange it for real goods and services.

What it actually does is transfer a small amount of seignorage revenues from the federal government to the counterfeiters. An anarchocapitalist might argue that this is as it should be--that the federal government's monopoly on currency is illegal. I won't go that far; the counterfeiters are, after all, free-riding on the full faith and trust of the US government. What I will suggest is that the trivial damage done by counterfeiters might not be worth making our national currency a laughingstock.

I don't have deeply considered views on counterfeiting, so I'll just strongly advise you to watch the embedded video atop this post. It's the Treasury Department's effort to introduce the new bill to the public, and it's adorable.

By Ezra Klein  |  April 22, 2010; 2:26 PM ET
 
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Comments

Counterfeiting doesn't cause many problems because it's small in scale. The way to keep it small in scale is to vigorously enforce the law, and do things like updating the design to incorporate anti counterfeit technology. If merchants became blaze about accepting fake bills, because they knew they could easily pass them along, counterfeiting would become more widespread.

The government realizes it cannot reduce the incidence of counterfeiting to zero. It just wants to keep the incidence as close to zero as is practicable.

Posted by: Jasper999 | April 22, 2010 2:40 PM | Report abuse

Having been burned by counterfeit $100s, I'll gladly settle for currency that McArdle find soo embarrassing.

Posted by: starfleet_dude | April 22, 2010 2:43 PM | Report abuse

People just hate change. After two years, they will have forgotten that this bill is ever new.

And I'd ask McMegan if she really wants to be living in a world where anyone with a 2400 dpi printer can get an unfair, illegal advantage over her and the government does nothing about it. Glibertarians are really good at pompously proclaiming their wish for all sorts of radical steps that, if actually implemented, would make them curl up and cry like little babies.

Posted by: dal20402 | April 22, 2010 2:45 PM | Report abuse

Friends don't let friends link to McMegan.

Posted by: zosima | April 22, 2010 2:55 PM | Report abuse

I think protecting the hundred dollar bill is extremely important to our national financial interests. Preventing counterfeit currency is a big part of that. The hundred dollar bill is the most used currency in the world (outside the U.S.). While currency is not used very much here or in Europe, there are a lot of places in the world where even large transactions are done in cash. One of the reasons the U.S. Treasury refuses to print any larger bills (say $500, $1000, $10000) like the Euro is because of counterfeiting (and theft). Carrying around a suitcase of $10,000,000 U.S. is way more difficult than carrying around a suitcase of 10 million Euro. That means it is difficult to smuggle U.S. currency, and counterfeiters have to make a whole lot more of it. Frankly, redesigning the $100 is way more important than the $20. People use counterfeit $20 at gas stations. They use counterfeit $100 to buy land, cars, anything.

I would recommend Craig Karmin's "Biography of the Dollar" (available at most bookstores) for more.

Posted by: Levijohn | April 22, 2010 3:02 PM | Report abuse

If some lone nutball were to go on a killing spree, the effect on American life expectancy would be miniscule. So would McMegan sanction that too?

It's just more proof: if it's McMegan, it's wrong.

Posted by: WarrenTerra | April 22, 2010 3:04 PM | Report abuse

I suspect that one consideration in Treasury's action is defending against counterfeiting as warfare. A foreign power could easily summon their technology to do damage to the U.S. economy. I have to also wonder whether we do the same thing to other countries... Iraq before Saddam's fall and Iran today both have serious inflation. There may be other explanations, but really... what would be stopping us?

Posted by: wagster | April 22, 2010 3:04 PM | Report abuse

I recall an article in Rolling Stone a few years back about a master counterfeiting ring. For all the technology employed in currency, the hardest thing for them to beat were those pens that clerks use that show up a different color on real Treasury bills.

Posted by: JEinATL | April 22, 2010 3:07 PM | Report abuse

My understanding is that the $100 bill is a staple various illegal activities and is not widely used within the US. Given that, should we even continue to issue $100 bills? Do we benefit from having them in circulation?

Posted by: Rhyolite | April 22, 2010 3:08 PM | Report abuse

WarrenTerra,

nice stereotyping of Megan. This really shouldn't be a polarizing topic but so nice of you to make it one.

just goes to prove my theory that if Rush Limbaugh cured cancer some would rather die of it than be cured!

that being said I can see both sides of the argument.


I'm fine with adjusting it as long as it doesn't cost that much money, makes it more difficult to counterfeit etc.


Posted by: visionbrkr | April 22, 2010 3:14 PM | Report abuse

I was with McArdle until "making our national currency a laughingstock". The new note is not a laughingstock, except to people who have been conditioned to expect their currency to look all green and demure (i.e. Americans).

The part I still struggle with is how twentieth century the security measures are. Try making counterfeit New Zealand currency; it's printed on plastic and has a little window you can look through. Now that's adorable!

Posted by: Unwisdom | April 22, 2010 3:14 PM | Report abuse

In my experience, it's a waste of time responding to Megan, but she might want to remember that a few years back North Korea was accused of massive counterfeiting. If done on a large scale, printing fake money can not only devalue our currency but it can also make others more reluctant to accept American dollars overseas, for fear that the bills are counterfeit. In the case of North Korea, it also supports a pretty brutal dictatorship. Those are serious costs.

As for the statement "If the stuff isn't distinguishable from real money, then who's defrauded?" That's just silly. Counterfeits are always detectable in some way. They don't simply remain in circulation forever. And when they're detected as fake, the person who accepted the bill is out $100. It's not that hard to understand.

But as I said, it's probably not worth your time arguing with Megan about it.

Posted by: walkerc1 | April 22, 2010 3:18 PM | Report abuse

The burning question is, will we save enough from deterring counterfeiting to make up for what it cost to develop and print these monstrosities?

Posted by: dlk117561 | April 22, 2010 3:19 PM | Report abuse

personally i'm better with them doing this (if they're going to do it at all) with $100 than with $5, $10 and $20. That to me seems like a real waste and wasn't that done during the Bush administration???

Posted by: visionbrkr | April 22, 2010 3:21 PM | Report abuse

I watched that video and man, if that 100 dollar bill isn't so freaking awesome I want to get a bunch of them and just leave them under my mattress. Take that, aggregate demand!

Posted by: jacobh | April 22, 2010 3:23 PM | Report abuse

@Jasper99 FTW. Just when I start to think that EK is a really smart young blogger, he links (neutrally) to something idiotic like this.

Meanwhile, the bill isn't "ugly," it's "different."

Posted by: ajw_93 | April 22, 2010 3:25 PM | Report abuse

I really don't get it. There's nothing wrong with the new $100. There's every reason to try to minimize counterfeiting. If I worked at the treasury, the best job I could imagine would be being part of the team that redesigned currency and coinage. That would be awesome! I'm surprised it took us so long to start seriously updating our money, quite frankly.

Here's the thing about counterfeiting--old currency remains legal tender for years. Counterfeiters who have successfully counterfeited older currency can produce that in large quantities while trying how to economically counterfeit the new currency.

The thing is, governments really get to use economies of scale. Which is another good reason to have a $100 bill all gimmicky like the new one is. One might argue that it's still cost effective for a counterfeiter to make the bill, if it ends up costing them $10 per bill (just to make up a number). But most of that cost will be front loaded in getting to the point where they can counterfeit, and that could cost a whole lot of money. Also, the more complicated the bill, the more people may need to be involved in the counterfeiting operation, thus making it more likely to be stopped (whistle blower, informant, suspicious street vendor or maintenance man).

There are lots of good arguments for the new, more complicated bills. And I'm all for printing our currency on plastic. With a magnetic stripe and a bar code.

Posted by: Kevin_Willis | April 22, 2010 3:27 PM | Report abuse

This is the stupidest thing I've ever heard. Of course there's very little counterfeiting--that's because FAKE MONEY IS HARD TO MAKE.

I recently tried to pay for something with a $100 bill. The guy at the counter used a broken franking pen to test it, and argued to me that the bill was fake. I pushed back and said "but look at the 100s, look at the watermark...how is it fake?" He used a second franking pen and lo and behold, it was fine.

If we didn't trust cash, people would get scammed ALL THE TIME. Shop owners would see a big bill and say "okay, but I am giving you only $30 in change instead of the $50 you deserve, because I need some insurance." They'd impose a "large bill fee." It would be very BAD.

Posted by: theorajones1 | April 22, 2010 3:28 PM | Report abuse

Vision, I was incendiary, but my parallel's not that bad: someone is doing an unambiguous wrong, but the effect on the average American, especially on McMegan, is infinitesmal. So she's not bothered.

Posted by: WarrenTerra | April 22, 2010 3:32 PM | Report abuse

A commentator on Brad DeLong's site (not me, alas) recently suggested a useful corollary to Krugman's law (i.e., 1) Krugman is always right; 2) if in doubt, see 1):

He called it Megan's Lemma:
1. Megan McArdle's analysis is incorrect.
2. If you think that Megan McArdle's analysis is correct, see Paul Krugman.

Posted by: retr2327 | April 22, 2010 3:52 PM | Report abuse

our government earned about $25B in seignIorage in 2000. People who don't trust a currency because of weak counterfeiting measures won't accept it. Those are reasons enough to counter a funky looking bill increasing the national-laughing-stock measure.

Regardless, the new bill looks fine. As for McMegan, what zosima said. AND what Ezra said on August 6th, 2009: "As of late, I think my credentials on the subject of "thinking Megan McArdle is wrong about things" are pretty ironclad."

Posted by: rglvr | April 22, 2010 3:55 PM | Report abuse

Um, apparently folks aren't keenly aware of the fake $5 bills circulating. Most merchants (gas stations, convenience stores, etc.) are aware: some even keep separate cash-drawer stacks of $5, one for change to customers and one for deposit.

Counterfeiting is a huge problem -- not a small one -- but it is kept relatively quiet to preserve faith in the currency. Senator Leahy tactfully addressed the issue in hearings a few years ago and, as a partial result of the hearings, certain aspects of both counterfeiting and credit card fraud remain Secret Service matters (and remain secret).

The problem of counterfeiting will continue to grow as new regulations have the effect (but not the overt intent) of promoting the use of cash (especially by laborers and service employees). So, I'm glad that Treasury is being proactive.

Posted by: rmgregory | April 22, 2010 4:01 PM | Report abuse

I don't have the visceral reaction to McArdle that some have, but I think she tends to have somewhat interesting ideas that almost never survive five minutes thought. As others have said, the aggregate negative impact on the US may be small, but the benefit of the counterfeiting is going to very bad people. I don't personally feel much impact of the heroin trade, but I'm pretty sure I don't want the money going to the guys that are getting it. With drugs there's a debate to be had about changing laws to reduce/eliminate the value to the bad guys, but money's just money.

Also, as others have said, counterfeiting is so rare because it's so hard. It's so hard because we occassionally roll out new bills that make it harder. I don't know what the aggregate impact of counterfeiting is now, but I'm sure it'd get much much higher if we stopped trying to stop it.

Finally, I just don't care what money looks like. I may notice the new portrait of Thomas Jefferson on the nickel and say, "Cool." but I'm not bothered at all by the idea of money that I find unattractive. I'll just give that money away for electronic gadgets that I find very, very attractive. McArdle's side of the argument is kind of fun sounding, but really it's all just based on hating change. Wow. Pun not intended, but loved!

And yes, we really should go to plastic money. It's way more durable. Anyone know why we haven't?

Posted by: MosBen | April 22, 2010 4:29 PM | Report abuse

WarrenTerra,

WOW! You almost admitted you were wrong. Well not quite.

The point is this topic is NOT politicial and should not be yet you chose to make it so.

It seems as if nowadays if conservatives said the sky was blue you'd argue for black. i also readily admit many conservatives do the same thing but again that doesn't make EITHER side right. Just overly political when there's absolutely no reason to be.

If Megan aggrivates you so much don't read her.

Posted by: visionbrkr | April 22, 2010 6:10 PM | Report abuse

The Atlantic's national embarassment - Megan McArdle:

"What I will suggest is that the trivial damage done by counterfeiters might not be worth making our national currency a laughingstock."

So this is libertarianism: pretty money outweighs the integrity of money.

Does Megan care if someone finds that their money is worthless when they try to spend the counterfeit bill and they are out $100.00 (and might face criminal charges as well)? I guess they are just whiners of the liberal/progressive variety.

So much dumb packed into one mind is hard to comprehend.

Posted by: JimPortlandOR | April 22, 2010 6:33 PM | Report abuse

Wait... isn't Megan the one who couldn't seem to find any use for the post office, either?

Oy.

Posted by: CincyJen | April 22, 2010 9:51 PM | Report abuse

Re: "This is the stupidest thing I've ever heard."

You must not have read much McArdle, then.

Posted by: sneezy2 | April 22, 2010 11:12 PM | Report abuse

I must admit I'm mildly disappointed, on aesthetic grounds. They really have been tinkering with our branding for some time here. Still, it's not like there's a really practical downside.

Posted by: adamiani | April 23, 2010 2:53 AM | Report abuse

To learn more about security features, banknotes, and anti-counterfeiting measures visit www.globalpapersecurity.com

Posted by: tmurphy1 | April 23, 2010 9:49 AM | Report abuse

I'm a fan of the new design, even if it is just because the design looks better than the boring design we had before.

The only time I actually find myself using cash these days is when I'm in a bar, so I agree with McArdle confusing over what all the fuss is about--though I assume some of the news coverage is simply because the Tea Parties had a slow week.

Posted by: clarenceflanders | April 24, 2010 12:20 PM | Report abuse

She is mistaken. The government is just not worried about what circulates here but around the world. After all there are more dollars in circulation outside of the USA.

We also know foreign governments that are hostile towards have programs which actively counterfeit our money.

Posted by: cleancut77 | April 25, 2010 12:51 PM | Report abuse

This bill has the exact same security features the Mexican $200 pesos has had for the last two years. I'm glad the $100 dollar bill finally has good security to avoid falsification.
http://www.youtube.com/watch?v=IrbPEwZ-w5I

Posted by: Excursioner | April 25, 2010 3:35 PM | Report abuse

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