These are gloomy days for Chester A. Arthur fans: Until it was nixed last December as a budget-cutting measure, the 21st president's $1 coin was to have been released last week. But aside from a few collectible rolls issued for aficionados of the Garfield Veep and former hat-industry lobbyist, the Chester A. Arthur coin is now as dead as Chester A. Arthur himself.
"As will shock you all," Vice President Biden drolly noted in announcing the suspension of the $1 Presidential Coin program, "calls for Chester A. Arthur coins are not big."
Nor was the demand for any other $1 presidential coin, it seems: last year over 1 billion unwanted dollar coins were languishing in Fed vaults; polls found that, as long as $1 bills were still being made, most people preferred them instead. Undeterred by the coin's unpopularity—or by the slow fade of coin and paper currency alike in an increasingly cashless era—several weeks ago Senators John McCain (R-AZ) and Tom Harkin (D-IA) announced support for the COINS Act, a new bill that would phase out $1 bills over the next four years in favor of $1 coins. It's an ambitious plan, but there's a hidden catch: Adopting $1 coins may leave a half-billion-dollar hole in our pocket—from counterfeiting.
If counterfeit coins sound like a problem more suited to the Arthur administration, tell that to the Europeans. The same week as McCain and Harkin announced their support of the bill, the European Commission Anti-Fraud Office released its latest report on fake coins. Their European Technical and Science Centre intercepted 157,000 bogus euro coins in 2011. The report's year-to-year figures reveal that faked 50-cent and 1-euro coins, worth about 66 cents and $1.32 respectively, have been steadily increasing in number for the last four years.
Coin counterfeiting lives on as a low-tech and low-risk crime with steady returns through bulk sales to criminals and laundering via crooked storeowners and even through slot machines. In the last decade, most major coinages have been faked, including British pounds, Russian rubles, Indian rupees, Japanese yen, and Canadian dollars.
Although they seize thousands of fake coins every year, both Europe and Canada have kept counterfeiting rates relatively low by actively sorting and keeping track of fakes, and then responding with countermeasures. The 1 and 2 Euro pieces have a bull's-eye-style bimetallic composition—an invention that dates back to the Romans, but that can still deter amateurs—while this year, Canada issued new $1 and $2 coins with laser-marks and electromagnetic signatures meant to deter counterfeiters.
Other countries have not fared so well—and the U.K., in particular, offers a cautionary tale. The British pound is an old-fashioned gold-colored coin with a bewildering number of variant designs. In other words, it's rather like a U.S. dollar coin, if far more subtly colored and pleasingly weighty. In the early 1990s, Brits began noticing shabbily engraved and suspiciously light currency jangling their pockets; bartenders found lagers paid for with quids so soft that you could dent them on the edge of the bar. In Edinburgh's rougher pubs, the going rate for a bag of 1,000 coins was £180, while in Northern Ireland paramilitary gangs were said to be getting in on the action. One counterfeiter alone, sentenced in 2007, was found to have struck 14 million pieces; another gang, as police were closing in, dumped 13,000 coins into the River Thames. They could afford the loss: Their mint had turned a profit of about £450,000 on an initial setup cost of £10,800.
Robert Matthews, a counterfeit-coin expert and former Queen's Assay Master at the Royal Mint, says the problem is still getting worse, even as the Mint grows uncomfortably quiet about its findings.
"It has been like extracting teeth from a tiger, getting information from the Royal Mint," Matthews wrote in an email to me. "And I had contacts."
Their reticence is unsurprising. Press inquiries in 2010 found that, with over 41 million faked pound coins in circulation—nearly 3 percent of the total coinage—the Royal Mint was facing the possibility of an expensive currency recall. An internal HM Treasury email (PDF), released under Britain's Freedom of Information law, notes that analysts typically regard 5 percent as the point of no return for any currency. But the report also points out that South African 5 Rand and Malaysian 1 Ringgit coins were both reissued (in 2004 and 2005, respectively) after much lower counterfeit rates. The implication is that Britain's currency is already in peril.
What may have spared the United States from such embarrassment, Matthews politely ventured to me, is our level of usage: That is, $1 coins are so unpopular that even counterfeiters can't be bothered.
But could coin counterfeiting happen here? Incredibly, we don't even know if it already has. The Secret Service is in charge of dealing with counterfeit currency; but after making Freedom of Information Act inquiries with them when the $1 presidential coin program was in full swing, I found their countermeasures appeared to be ... nothing at all (PDF). And unlike the authorities in Europe or Canada, the Secret Service has issued no reports of assaying $1 coins or looking for counterfeits. (This despite the fact that in 2003, the Secret Service announced (PDF) busts in Colombia of operations creating fake Sacagawea dollars.) The U.S. Mint website doesn't even mention the possibility of fake modern circulating coinage, nor does it give instructions on how to detect them. Then again, with 25 different $1 coin designs already in circulation—the Susan B. Anthony, four Sacagawea variants, and the first 20 presidents—the $1 coin's identity has been so diluted that few would know a real from a fake anymore. Could you pick James K. Polk out of a lineup?
At least one agency has taken notice of the problem inherent in proposals like the COINS Act, though: the General Accounting Office. "Senior officials at the Federal Reserve and Mint told us the increased circulation of $1 coins could increase the risk of counterfeiting," noted a GAO report last spring. Their analysis—which was otherwise rather favorable to the coin option—noted that the United States was far less prepared for such counterfeiting than other nations: "Both Canada and the U.K. created validation programs. ... The Federal Reserve banks circulate coins they receive from commercial banks, but do not have a comparable validation program."
"There are no public security features or analogous infrastructure for authenticating coins. Therefore, the public is not able to determine whether a coin is genuine or counterfeit ..." it concluded. "Further, the government has no high-speed, automated sorting equipment to detect and remove counterfeit coins, nor is it clear that such a solution exists that could ascertain authenticity. ... If the U.S. replaced $1 notes with $1 coins and we experienced similar counterfeiting levels [to the U.K.], the economic loss in the U.S. would range from $400 to $540 million."
Such warnings have gone unheard in Congress. Examining the text of the COINS Act reveals that, even as it would create a small-change economy where fakes would flourish, its language does not mandate any anti-counterfeiting measures. In fact, the bill makes no mention of currency security or counterfeiting at all.
Perhaps the sponsors were distracted. U.S. Senate disclosure forms show one group, the Dollar Coin Alliance, poured $600,000 into lobbying in 2011 alone. Buried in those same forms is another curious revelation: the two major backers of the Dollar Coin Alliance are PMX Industries Inc. and Global Brass & Copper Inc., both manufacturers in the copper and brass market. The mystery does not exactly deepen when you notice that the Dollar Coin Alliance also shares the same Cedar Rapids street address as PMX Industries.
Not everyone is a fan of the COINS Act, though. Another bill, the Currency Efficiency Act, effectively seeks to phase out dollar coins by keeping production suspended whenever the surplus sitting in vaults "exceeds the reasonable circulation needs for one year." But co-sponsors John Kerry (D-MA) and Scott Brown (R-MA) might not have currency security at the top of their minds either. Crane & Co., the sole supplier of paper in U.S. currency, just happens to be based in—need you ask?—the great state of Massachusetts.