Counterfeit Money

Abstract

Counterfeit money is the topic of television, movies, and lore but hardly seen by most of us - for only about one in ten thousand notes is found to be counterfeit, annually, in the USA (Judson and Porter 2003). And while the value of globally seized and passed counterfeit American dollars has exceeded $250 million in recent years, it is a multi-billion-dollar potential crime. Here, we distill a recent model of counterfeit money as a massive multi-player game of deception. Bad guys attempt to pass forged notes onto good guys. Good guys expend effort to verify the notes, in order to avoid potential losses. The model sheds light on how the counterfeiting rates, the counterfeit quality, and the cost of attention vary in response to changes in the banknote denomination, the technology, and the severity of the legal penalties for counterfeiters.

Keywords: Deception games, seized money, passed money

JEL Classification: K14, K42, C73, C78