After production problems and delays, the Federal Reserve will finally circulate a new $100 bill on Tuesday. The aim of the redesigned bank note is to make it harder to fake: For example, when you tilt the note, the bells and numbers inside a 3-D security stripe will move, and a bell hidden inside the gold inkwell will change color.
Although the proportion of fake money in circulation is minuscule, the Federal Reserve needs to do whatever it can to make the job hard for counterfeiters, says Ed Nosal, who studied counterfeiting using economic models and is now the vice president and senior research advisor at the Federal Reserve Bank of Chicago. He points out that without constant improvement on banknote designs, there would be a lot more fake money being made and there wouldn't be any point to having real money.
According to figures from Brian Leary, a U.S. Secret Service spokesman, less than 0.01 percent of all the U.S. dollars in circulation are fake. The Secret Service seized around $66 million in fake money last year, and Leary says around $95 million was circulated.
That's because U.S. bank notes aren't that easy to forge. However, the game changes when a government becomes involved in counterfeiting. Most countries print their money on special presses made in Switzerland that are only sold to governments, says Dick Nanto, a now-retired specialist in industry and trade at the Congressional Research Service.
The $100 notes are also especially problematic because it's the most forged American note, according to Lones Smith, an economist at the University of Wisconsin-Madison who has studied counterfeiting. To make matters worst, the $100 notes — both real and fake — also last an average of eight years, longer than others, because they're not used often.
Smith says the new notes are a step forward, but making better banknotes won't be enough to stop forgers because it doesn't directly address another problem — the people who pass on fake notes, whether knowingly or not.
"Everyone in the economy is playing one massive multiplayer game against each other," says Smith, who has studied Secret Service data on counterfeit U.S. dollars and describes it as a game of hot-potato.
Technically, you're obligated to turn in any fake notes you come across, but you won't get your money back, so there's an incentive to just pass it along.
Not only are people not motivated to report fake banknotes, but they may not check the ones they have, and Smith says that's why the U.S. loses just as much money every year due to forged notes, despite changes in technology.
He found that people will look at a banknote more closely if the note is worth more, and if they know the next person they pass it to will check. If the Federal Reserve wants to stump the forgers for a longer time, he says it should design a feature that's easy to notice, like different colors, which is what Bank of Canada did in 1969.
"What really matters is are people really looking at their money? Unless they can make money start flashing yellow lights or something like that, it's not going to be something that people are going to notice," Smith says. "I think we're just waiting for the next amazingly-hard feature of money to reproduce, but I don't see it happening."