In their proposed 2012 fiscal plan, the Thai government is attempting to borrow Bt400 billion to finance the budget deficit and intends to borrow another Bt400 billion in order to finance restoration projects that are necessary to help rebuild the country after it was struck by major flooding in the spring of 2011. On top of this, the government has also announced efforts to shift the public debt of Bt1.14 trillion to the Bank of Thailand’s account.

“The government’s plan to force the central bank to repay the debts of the Financial Institution Development Fund would result in the printing of more money for the government,” said Democrat MP Sansern Samalapa. “People would be happy for a while, for there would be no need to pay taxes, but then the banknotes would become worthless paper.”

Printing more money than needed is a dangerous road, writes MSNBC Senior Producer John W. Schoen.

“If you create more currency without raising the value of the whatever backs that currency, the value of the currency drops,” he says. “Currency is really just a piece of paper that stands for something of value. Increasing the amount of currency without increasing the value it represents just makes the currency worth less than when you started.”

Samalap provided examples of Latin American countries who tried to undergo similar debt shifts, and who ended up in situations of hyperinflation leading to the collapse of their economies.

Michael K. Salemi, an economics professor at the University of North Carolina, provides an account of one of these situations, which occurred in Bolivia.

“The Bolivian hyperinflation is a case in point. Eliana Cardoso explains that in 1982 Hernán Siles Suazo took power as head of a leftist coalition that wanted to satisfy demands for more government spending on domestic programs but faced growing debt service obligations and falling prices for its tin exports,” he writes. “The Bolivian government responded to this situation by printing money. Faced with a shortage of funds, it chose to raise revenue through the inflation tax instead of raising income taxes or reducing other government spending.”

Hyperinflation, Salemi says, always reduces an economy’s efficiency due to the fact that it drives people away from monetary transactions.

SOURCES:
The Nation: “Govnt Debt Policy Will Make Currency ‘Worthless’”
MSNBC Answer Desk: “US Budget Deficit Fix: Print More Money?”
The Concise Encyclopedia of Economics: “Hyperinflation”

New Jersey issued this six-pound note in 1761, during the French and Indian War. It warned "To counterfeit is Death," because counterfeiting was deemed a capital offense. Courtesy History.org

*This article is the first in a three-part series on counterfeiting.

The act of counterfeiting is as old as money itself. Plaguing ancient Rome, empirical China, newborn America, and many other nations over the past 2500 years, the illegal activity came hand in hand with the creation of money.

Even prior to the invention of coin and paper currency, counterfeiting was a popular form of trickery. In Prehispanic Mexico, for example, Cacao traders would extract the contents of the bean and substitute the valuable innards of the plant with soil.

In the ancient world, of course, currency was invented hundreds of years before these Mexican ruses. Real currency made its debut in the form of coins around 700 B.C. and counterfeiting soon followed. Coins had not yet been marked or etched with images or slogans, so reproducing coins out of less valuable metal was easy.

The problem became so severe in places like ancient Rome, that “it was considered treasonous and punishable by death if the perpetrator was caught. This was because many believed that anyone who disturbed the market with fake money was putting the nation’s economy and its general stability and strength in serious jeopardy.”

Those sentiments were echoed by the Chinese upon the invention of paper money, which appeared on the global currency scene during the Yuan Dynasty in the 13th Century. In order to prevent counterfeiting, “the Emperor ordered that the following be printed on all banknotes: ‘Counterfeiting shall be punished by death. Informers shall receive 250 taels of silver and the criminal’s property.’”

Throughout history, however, counterfeiting has not only come at the hands of criminals. The British government “produced large quantities of bogus assignats to undermine revolutionary France,” and helped the process of devaluating “Confederate paper money by printing it themselves and sending it to the South” in pre-revolution America to the point where Confederate banknotes were almost worthless.

By the end of the eighteenth century, counterfeiting was flourishing. During the Civil War, “one-third to one-half of the currency in circulation was counterfeit.”

Coin counterfeiting had become so advanced in the United States that “when the first federal coins were issued by the US government in the 1780s, they had the dies cut by an ex-counterfeiter in order to deter the practice.”

Paper money in the US was also being easily counterfeited because of merchants’ inexperience with the currency. One historian explains: “Rural colonists were not very familiar with paper money because their daily lives did not revolve around commercial transactions; furthermore, they had a deep prejudice against it because they did not regard it as ‘real’ money. Because merchants lacked familiarity with authentic paper money, they could be fooled by some surprisingly amateurish counterfeits.”

Though anti-counterfeiting measures were being developed throughout the world by the nineteenth century – particularly in America – counterfeiting continued.

One of the most professional cases of counterfeiting was carried out by the Germans in World War II who “had control of expert counterfeiters imprisoned in the Sachsenhausen concentration camp, and even manufactured very convincing paper, which can be more difficult to forge than a banknote’s appearance.”

The counterfeits produced by the Germans in the first half of the twentieth century were so good in fact that when The Bank of England managed to obtain some falsified British pounds, they said “the only way in which [the fake banknotes] differed from the real thing was that the real thing wasn’t as good.”

Today, thanks to modern advances in scanning and printing technology, counterfeiting paper banknotes is perhaps easier than ever. Because of this, security features are becoming an – if not the most – important part of banknote design.

In Part 2 of Counterfeiting: A Three-Part Series, we will take a look at the history of security features and identify how different security features have evolved over time to prevent counterfeiting.

SOURCES:
“History of Counterfeit Money”
“A Short History of Money”
“History of Counterfeiting”
“History of Counterfeiting”
“The History of Counterfeit in Russia”
“The Golden Age of Counterfeiting”
“History of Counterfeiting in Mexico”

The new North Korean won banknotes. The new bills are worth 1/100th of what the old bills were.

Though the currency will keep the same name (the won) one hundred old won is now only worth one won – 1/100th of their previous worth.

The government made the announcement on Monday, and has informed citizens and foreign embassies they have until this coming Sunday to exchange old bills for new ones:

“Bills that were not exchanged during the period and our currency that has been illegally taken outside the country will become entirely invalid,” said an official from the country’s Central Bank.

But there is a stringent limit on the amount of currency people can exchange – only 150,000 won to be precise. The rest must be deposited into government-run banks or else it will be rendered useless in the coming weeks, said South Korean media outlets.

Businesses throughout the country have been shut down for the week while the transition takes place and Pyongyang residents are rushing to the black market to convert their cash savings into foreign currencies.
Under current black market rates, 150,000 won is worth about $60 US.

The government said the reason for the change in currency and its rates is because of the countries decade-plus run of economic hardship and the increasing evidence of runaway inflation.

While critics agree that tough economic times have been no stranger to North Korea, some, as the American Press reports, believe this change is more complex:

“The government is retaking control of the economy from the hands of merchants, analysts said.
‘This is aimed at rooting out the budding private sector and strengthening the government’s control of the economy,’ said Jeong Kwang-min, a research fellow at the Institute for National Security Strategy in Seoul.

He said the move has a broader goal in mind: to pave the way for Kim Jong Il to turn over power to his youngest son, Kim Jong Un, and to ensure he inherits a stable economy.”

Good Friends, a Seoul-based civic group has said the main goals of the conversion are to target the struggling middle class and to crack down on private markets that have stoked capitalism.

The group also reported this week that authorities have threatened “merciless punishment” for anyone violating the rules of the currency exchange.

SOURCES:
Morrison World News: “North Korea switched currency, 100 to 1 rate”
Yonhap News Agency: “N. Korea confirms currency reform, vows to normalize economy”
Yonhap News Agency: “New N. Korean banknotes feature Kim Il-sung, his birth home”
Penny Stock and OTCBB News: “Activists: Despair in N. Korea over currency exchange (AP)”
The Morning Star: “DPRK devalues currency to ‘fight inequality’”