Marcela M. Williams

Richard G. Anderson

English

Research Papers in Economics

March 2007 MonetaryTrends
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
D
espite the increasing use of electronic payments and
credit cards, currency remains the most familiar medium
for face-to-face transactions in the U.S. economy. In
addition, U.S. currency, more than any other of the world’s cur-
rencies, is widely held as a store of value and used as a medium
of exchange outside its home country. The chart shows the cur-
rency component of M1 and the Federal Reserve Board staff’s
estimates of U.S. currency held by the rest of the world. In 2005,
approximately 50 percent of all U.S. currency in circulation, or
about $350 billion, was held outside the United States. 
U.S. currency is an attractive asset to residents of nations
with political or economic uncertainty. Much of the recent growth
in demand for U.S. currency has been in countries of the former
Soviet Union and Latin America. Indeed, anecdotal press reports
tell of Moscow taxi drivers insisting to be paid in U.S. dollars
rather than rubles. Other stories tell of merchants in the most
remote areas of China accepting—and giving change in—U.S.
banknotes. The extensive, widespread use of U.S. currency
benefits American taxpayers because, unlike Treasury bonds,
the currency is a liability of the Treasury on which no interest
is paid.1 The use of the banknotes also is a social and economic
benefit to the residents of foreign countries who might otherwise
lack a currency that is stable in value and widely accepted in
transactions. This same popularity also is a curse, encouraging
counterfeiting of U.S. banknotes. Despite the temptation
and potential profit from counterfeiting, the Treasury and
Federal Reserve estimate that the frequency of counter-
feiting is low, approximately 1 note in 10,000 both in
the United States and abroad. At Federal Reserve cash
offices, during 2005, $100 denominations had the highest
frequency of counterfeit notes, at 44.1 notes per million
processed, followed by $10 denominations, at 7.8 notes
per million. Overall, 6.4 counterfeit notes were detected
per million notes processed.2
Technological innovations in color copying, scanning,
and printing have intensified the race between increas-
ingly sophisticated banknote counterfeiters and govern-
ment banknote designers. Perhaps the most difficult-to-
duplicate counterfeit deterrence feature of U.S. banknotes
is its unique yellow-green paper. Combined with intaglio-
printed images and numerals, U.S. currency has a unique
“feel,” which surveys have reported is the most common
method of counterfeit detection by the public and bank
employees. Other features include magnetic ink, large
detailed presidential portraits, color-shifting ink in the
front lower-right corner of notes (the color of which differs by
denomination), watermarks, security threads that glow different
colors under ultraviolet light, microprinting, subtle shades of color
overprinted on the front and reverse, and embedded machine-
readable features. 
As the design of U.S. currency has been revised through time
to deter counterfeiting, an underlying principle of the Bureau of
Engraving and Printing has been to retain the distinctive “American
look” of U.S. banknotes: All denominations are physically the
same size and use the same primary ink color. For at least 30
years, however, advocates for the visually impaired have asked
for changes to make U.S. currency more accessible, including note
size that varies by denomination. Any such redesign of U.S. cur-
rency would need to be studied carefully, to avoid reducing the
international recognition and acceptance of U.S. currency, and be
accompanied by an effective public education program to ensure
its continued acceptance at home and abroad. 
—Richard G. Anderson and Marcela M. Williams
1 Technically, currency is a liability of the Federal Reserve Banks. But, because
the Banks hold Treasury securities as specific collateral against currency and
return to the Treasury nearly all the interest they receive on these bonds, for prac-
tical purposes currency may be regarded as a liability of the Treasury.
2 United States Treasury Department, The Use and Counterfeiting of United
States Currency Abroad, Part 3, September 2006.
U.S. Currency at Home and Abroad
research.stlouisfed.org
U.S. Currency (billions)
At Home
Abroad
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U.S. currency at home and abroad

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U.S. currency at home and abroad

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