The U.S. currency, reportedly the most widely held in the world, is susceptible to counterfeiting. High foreign inflation rates and the relative stability of the dollar have contributed to the increasing use of U.S. currency outside the United States. Of the $380 billion of U.S. currency in circulation, the Federal Reserve estimates that over 60 percent may be held outside the United States. The widespread use of U.S. currency abroad, together with the outdated security features of the currency, makes it a vulnerable target for international counterfeiting. Excluding two changes introduced in 1990, the overt security features of the currency have not substantially changed since 1929. This situation has resulted in the U.S. dollar’s becoming increasingly vulnerable to counterfeiting. Widespread counterfeiting of U.S. currency could undermine confidence in the currency and, if done on a large enough scale, could even have a negative effect on the U.S. economy. The United States benefits from the international use of its currency. When U.S. currency remains in circulation, it essentially represents an interest-free loan to the U.S. government. The Federal Reserve has estimated that the existence of U.S. currency held abroad reduces the need of the government to borrow by approximately $10 billion a year. The Treasury, including the Secret Service and the Bureau of Engraving and Printing, and the Federal Reserve have primary responsibilities for addressing the counterfeiting of U.S. currency. The Secretary of the Treasury is responsible for issuing and protecting U.S. currency. The Secret Service conducts investigations of counterfeiting activities and provides counterfeit-detection training. The Secret Service is also the U.S. agency responsible for anticounterfeiting efforts abroad. The Bureau of Engraving and Printing designs and prints U.S. currency and incorporates security features into the currency. The Federal Reserve’s role is to distribute and ensure the physical integrity, including the authenticity, of U.S. currency. A diverse group of perpetrators uses a variety of methods to counterfeit U.S. currency. And, although counterfeiting is carried out primarily for economic gain, it is sometimes linked with other more nefarious criminal endeavors, such as drug trafficking, arms dealing, and alleged terrorist activities. According to law enforcement officials, counterfeiters run the gamut from office workers to organized crime and terrorist groups, and the equipment used for counterfeiting U.S. currency ranges from photocopiers to sophisticated offset presses. Moreover, the quality of counterfeit notes varies significantly. Even those notes made using the same method vary according to the sophistication of the perpetrator and the type of equipment used. Of increasing concern is the fact that certain foreign counterfeiters are becoming extremely sophisticated and are now producing very high-quality counterfeit notes that are more difficult to detect than any previous counterfeits. The highest-quality family of counterfeits known today is commonly referred to as the Superdollar. While many allegations have been made about the Superdollar, little evidence in support of these allegations has been made public. In the Middle East, a group, allegedly a foreign government, is said to be sponsoring production of the Superdollar. According to reports by the House Republican Task Force on Terrorism and Unconventional Warfare, the Superdollar is printed in the Middle East on “high-tech state-owned presses with paper only acquired by governments.” Also according to the task force, the Superdollar is “designed for direct infiltration into the U.S. banking system and has become a major instrument in facilitating the flow of militarily useful nuclear materials and equipment and various weapons systems.” A few of the foreign law enforcement and financial institution officials we spoke with believed the Superdollar was being circulated through various terrorist organizations around the world. This belief was primarily based on reports of detections involving individuals with links to terrorist organizations. However, according to the Secret Service, the task force has provided almost no evidence to support its allegations. According to the Treasury, no evidence exists to show that the Superdollar is printed with paper acquired only by governments and that it is designed for direct infiltration into the U.S. banking system. The Treasury also maintained that support for the remaining allegations concerning the Superdollar was inconclusive. Furthermore, although the task force reported that between $100 million and billions of Superdollars are in circulation, the report provided no evidence to support these allegations. Since the Superdollar’s initial detection in fiscal year 1990, Superdollar detections have represented a small portion of total counterfeit currency detections, according to the Treasury and Secret Service. While high-quality counterfeit notes, such as the Superdollar, have received the most attention from the media, Treasury officials told us that their biggest concern was the rapid advances in photographic and printing devices. According to a 1993 National Research Council report requested by the Treasury, the counterfeiting problem will increase as these technologies improve and are made more accessible to the public. The Treasury has planned to combat such counterfeiting through changes to the U.S. currency design, expected to be introduced in March 1996. The criminal nature of the activity precludes determination of the actual extent to which U.S. currency is being counterfeited abroad. The best data available to reflect actual counterfeiting are Secret Service counterfeit-detection data. Using these data, Treasury officials concluded that counterfeiting of U.S. currency was economically insignificant. Secret Service officials told us that they supplemented the counterfeit-detection data that they gathered with intelligence information and field experience and that these data demonstrated an increase in counterfeiting activity abroad. However, our analysis of the same counterfeit-detection data proved inconclusive. Secret Service data have limitations and thus provide only a limited measure of the extent of counterfeiting activities. Foreign officials’ views about the seriousness of the problem of counterfeit U.S. currency were mixed. On the basis of the number of Secret Service counterfeit detections, Treasury officials concluded that counterfeiting of U.S. currency was economically insignificant and thus did not pose a threat to the U.S. monetary system. According to Secret Service and Treasury officials, detected counterfeits represented a minuscule portion of U.S. currency in circulation. Secret Service and Federal Reserve data showed that, in fiscal year 1994, of the $380 billion in circulation, $208.7 million had been detected as counterfeit notes. This figure represented less than one one-thousandth of the currency in circulation. However, while Treasury and Secret Service officials agreed that, overall, counterfeiting was not economically significant, they considered any counterfeiting to be a serious problem. The Secret Service used counterfeit-detection data, supplemented with intelligence information and field experience, to report that counterfeiting of U.S. currency abroad was increasing. In one analysis, it reported that the amount of counterfeit currency detected abroad increased 300 percent, from $30 million in fiscal year 1992 to $121 million in fiscal year 1993, thereby surpassing domestic detections in the same period. The Secret Service has also reported that, in recent years, a larger dollar amount of the notes detected in circulation domestically has been produced outside the United States. Since 1991, the dollar amount of counterfeit U.S. notes detected while in circulation and produced abroad has exceeded the dollar amount of those produced domestically. In fiscal year 1994, these foreign-produced notes represented approximately 66 percent of total counterfeits detected in circulation domestically. The true dimensions of the problem of counterfeiting of U.S. currency abroad could not be determined. The Treasury and the Secret Service use Secret Service counterfeit-detection data to reflect the actual extent of counterfeiting. However, although these data are the best available, they have limitations. Specifically, they are incomplete and present only a partial picture of counterfeiting. If these limitations are not disclosed, the result may be misleading conclusions. First of all, the actual extent of counterfeiting could not be measured, primarily because of the criminal nature of this activity. Secret Service data record only those detections that are reported to the Secret Service; they do not measure actual counterfeiting. As a result, the data provide no information about the number of counterfeiters operating in any given year or the size and scope of their operations. More importantly, these data could not be used to estimate the volume of counterfeit currency in circulation at any point in time. In the case of counterfeit currency appearing abroad, reasons for this include the following: (1) the data do not distinguish between how much counterfeit currency was seized and how much was passed into circulation; (2) the data could not provide information about how long passed counterfeits remained in circulation before detection; and (3) most critically, the data provide no indication of how much counterfeit currency was passed into circulation and not detected. Second, counterfeit detection data may in part only reflect where the Secret Service focuses its efforts. Use of these data thus may not identify all countries with major counterfeiting activity, but simply countries where agents focused their data collection efforts. For example, in fiscal year 1994, almost 50 percent of detections abroad occurred in the six countries where the Secret Service was permanently located. In other countries, counterfeit-detection statistics tend to be more inconsistent. Third, detection data for high-quality notes may be underreported. The Secret Service has said that, because so few Superdollars have been detected, this indicates that there are not many in circulation. However, according to the House Republican Task Force on Terrorism and Unconventional Warfare reports, the majority of Superdollars are circulating outside the formal banking system and therefore would not be reported to the Treasury if detected. Also, as we discovered on our overseas visits, many foreign law enforcement and financial organization officials had inconsistent and incomplete information on how to detect the Superdollar.