Some Like Them Hot

By Barbara Rudolph

Currency traders were shedding dollars last week like bad scrip, driving its value to a postwar low against the Japanese yen and forcing the U.S. Federal Reserve to prop it up with two days and $2 billion of aggressive buying. Yet even as it is unloaded by speculators, the dollar has become so common across the vast old communist territories that an estimated 50% of the populace in the former Soviet Union, for instance, keeps most of its meager savings in U.S. currency.

Throughout China, Cuba, Russia and much of Eastern Europe, people from shopkeepers to schoolteachers stash greenbacks as a shield against hyperinflation and the sudden devaluation of their own currencies. In some cases, it is also the only way to do business. Taxi drivers in Almaty, the capital of Kazakhstan, prefer their fares in dollars, as do some restaurants in Kiev and St. Petersburg. Says a Russian importer of IBM computers, pulling a thick wad of $50 bills from his pocket: "What do I need rubles for? I want real money."

But, as if this surreal saturation of dollars were not a generous enough compliment to the American coin, here comes another one: the American bill is being illegally reproduced around the globe and in greater quantity than ever. "The U.S. currency," says Secret Service spokesman Carl Meyer, "is not only the most desirable currency in the world. It is also the most easily counterfeited." Of the $350 billion worth of U.S currency in circulation today, anywhere from 50% to 65% is held overseas. In 1980, estimates University of Wisconsin economist Edgar Feige, just 30% of all dollars could be found offshore. No one knows how many fake dollars are traded, but there is no question that powerful new optical scanners and imaging software have generated a substantial amount. In 1992, $30 million worth of counterfeit $ dollars was seized overseas; last year the total hit $120 million, and it is expected to break that record in 1994. Many times that amount circulates without being traced. Belatedly, perhaps, the U.S. Treasury is fighting back, coming up with new technologies and precautions to protect the dollar. "The integrity of the nation's currency is at stake," Meyer notes.

In a microeconomic sense, that was also the case recently on Moscow's busy Old Arbat, where currency-exchange dealer Ilya was inspecting what appeared to be a legitimate $100 note. "It's a fake," he said. Turning the bill over, he pointed to the o in United States of America: it was too close to the f. At Kredobank, a privately held Russian bank, a Moscow casino operator recently tried to deposit $10,000 in cash. It wasn't worth the paper it was printed on. Kredobank, like most Russian banks, confiscates forged currency but usually does not report the incident to the police. For that reason, says a Western analyst with experience in the region, "we hear rumors of how many fake dollars are around, but there's little way to track it."

In much of China's explosive economy, phony $100 bills are as ubiquitous as construction cranes on the streets of Shanghai. Even in boomtowns, checks and credit cards are in limited use, and cash careens through the system at an alarming rate. Tracking down the counterfeiters is not easy, says Dai Weiwen, head of the exchange section of the Bank of China, because "our methods of detecting fakes are primitive." In recent months, however, banks have begun to install equipment such as money scanners to ferret out forgeries. The Industrial and Commerical Bank of China even fines employees who fail to detect fake currency.

In the U.S., government officials are studying the consequences of the newly pervasive greenback and the concomitant rise in counterfeiting. The currency outflow produces one sweet side effect: the Treasury saves an estimated $15 billion a year since it pays nothing on the dollars held overseas that don't make their way into American interest-bearing accounts. At the same time, since the flow of funds abroad cannot be precisely quantified, it makes it almost impossible for the Fed to gauge the domestic money supply and thus know with certainty how to manipulate it. "Estimates of currency held abroad are subject to considerable error," Fed Chairman Alan Greenspan testified before Congress last August. "We are looking at this issue in considerable detail."

In the corridors of the Treasury Department, meanwhile, counter- counterfeitin g teams are testing new dollar designs. The portraits of historical figures might be slightly enlarged and moved off center; watermarks might be added. Since 1990, polyester fibers have been imbedded in dollar bills so that when a bill is copied by a forger, the note's image is slightly marred. Now the Treasury plans to place those threads in one spot on all dollar bills to make it more easily detected. With counterfeiting a cottage industry around the globe, the American currency is likely to require a growing staff of tinkerers.

With reporting by Tom Curry/New York, Sally B. Donnelly/Moscow and Elaine Shannon/Washington