New Money

By Megan McArdle

Boy, the money just keeps getting uglier, doesn't it?  Our new $100 bill is now the official ugly stepchild of our currency family.

And yet, that's a good thing.  Ugly money--busy, jarringly colored, divided by grimly utilitarian security strips--is hard to copy.  The treasury is in a continual arms race with counterfeiters, who are a minor nuisance right now, but would be printing a lot more product.  I expect that by 2040, we'll be using currency so ugly that it will have a known visual disorder associated with it, and people will be forced to use blindfolds when they're checking out at the grocery store.

On the other hand, we don't use that much currency, so I'm not sure what all the fuss is about.  In theory, currency counterfeiting causes mild inflation.  In practice, the amount of currency that gets used in the United States is too small for counterfeiting to have any realistic impact on prices; these days, money is created not with the printing press, but in the electronic accounts of banks and the Federal Reserve.

But fraud! you will say.  Well, sort of.  If the stuff isn't distinguishable from real money, then who's defrauded?  The people who get the money will be perfectly able to exchange it for real goods and services.

What it actually does is transfer a small amount of seignorage revenues from the federal government to the counterfeiters.  An anarchocapitalist might argue that this is as it should be--that the federal government's monopoly on currency is illegal.  I won't go that far; the counterfeiters are, after all, free-riding on the full faith and trust of the US government.  What I will suggest is that the trivial damage done by counterfeiters might not be worth making our national currency a laughingstock.

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