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short essays and reports on the economic issues of the day
2007 ■ Number 6

U.S. Currency at Home and Abroad
Richard G. Anderson and Marcela M. Williams
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 currencies,
is widely held as a store of value and used as a medium of exchange
outside its home country. The chart shows the currency 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 counterfeiting 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 increasingly
sophisticated banknote counterfeiters and government bank note 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. currency 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. ■



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 practical
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 (billions)

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Views expressed do not necessarily reflect official positions of the Federal Reserve System.