A brief (and fascinating) history of currency counterfeiting: Focusing on Australia and some other cases

Richard Finlay and Anny Francis of RBA in this research note give a fascinating account of currency counterfeiting. They focus on Australia but pull examples from other countries too. Perhaps one of the best things that have read in this year so far.

Counterfeiting has a rich and varied history going back to the very earliest forms of money. It has been pursued for personal gain – although at the significant risk of jail time, or, in the past, death – as well as for economic and political destabilisation by hostile countries. Both high- and low-value denominations are liable to be attacked. Currency issuers and counterfeiters are, and always have been, locked in a battle of innovation, with government authorities adapting and innovating in order to deter counterfeiting. Acceleration in the rate of technological development, however, seems to have shortened the timeframe over which each new security feature remains counterfeit-resistant and, in response, currency issuers are having to upgrade their banknotes and coins more frequently to ensure that counterfeiting remains low.

Regarding Australia, government and Reserve Bank policies concerning banknote issuance have evolved over time, with past counterfeiting episodes playing a major role in this change. Early banknotes were issued by multiple banks, contained few security features and were often worn and tatty, making the passing of counterfeits relatively easy. Today the Reserve Bank is the sole banknote issuer and has in place a system of incentives that serve to ensure that dirty and worn banknotes are removed from circulation. Australian banknotes are among the most secure in the world; and absent banknote upgrades (as are currently taking place), there is typically only a single series of banknotes circulating. Past policies of paying for counterfeits served to encourage their manufacture, whereas now counterfeits are recognised as worthless. And on the law enforcement side, badly drafted laws, which potentially could criminalise every printer in the country, have been amended. It has also been recognised that federal oversight of counterfeit policing can be beneficial; this resulted in the establishment of a team within the AFP dedicated to counterfeit deterrence.

I found this case of Portugal most intriguing. A counterfeiter used Portugal’s corruption history in a really clever way:

Counterfeiting can also have significant economic and political impacts, especially when counterfeits are indistinguishable from genuine banknotes. Portuguese counterfeiter Arthur Alves Reis was a case in point. In the 1920s, Reis forged a banknote printing contract and supporting letters purportedly from the Governor of the Bank of Portugal. He used these to deceive a London-based banknote printer, Waterlow & Sons, who held official Bank of Portugal printing plates. Waterlow & Sons used the official plates to print additional banknotes for Reis, which were collected in suitcases by an associate and transported by train to Portugal (Bloom 1966; Hawtrey 1932).

Reis used Portugal’s then-reputation for corruption, and the banknote printer’s desire to secure new business, to convince the printer that the unusual arrangements were authorised by the central bank Governor. He ultimately convinced the printer to produce 580,000 500 escudo banknotes, worth almost 1 per cent of Portugal’s nominal GDP at the time. Reis founded a commercial bank in Portugal using the proceeds, and made investments including mines in Angola and purchases of Bank of Portugal shares (the aim of these share purchases was to gain control of the privately owned central bank and then retrospectively regularise the print run). The apparent easy success of Reis’s bank raised envy and suspicion, which ultimately led to Reis’s arrest (Kisch 1932). The uncovering of the plot (rather than the counterfeits themselves necessarily) contributed to the collapse of the government and the installation of the Salazar dictatorship (Wigan 2004).


Read the whole thing..

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