Modelling the Counterfeiting of Bank Notes: A Literature Review
Ben Fung and Enchuan Shao, Currency Department
• Ensuring that the threat of counterfeiting remains low is critical to maintaining the public’s confidence in bank notes as a means of payment . In the past 50 years, Canada has experienced two major episodes of counterfeiting at levels that threatened public confidence . The Bank of Canada has since developed a comprehensive anti-counterfeiting strategy that has brought counterfeiting under control and that supports public confidence by staying ahead of counterfeiters . Research that models the behaviour of relevant parties—the counterfeiters, the merchants and the central bank—helps to improve our understanding of their respective decisions: whether or not to produce counterfeit notes, whether or not to verify and accept bank notes offered, and what level of security to apply to bank notes . This research also sheds light on the importance of policies against counterfeiting .

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n June 2011, the Bank of Canada unveiled its new $100 and $50 notes to the public. The Bank’s new series of polymer bank notes, which incorporates innovative security features that are not only easy to verify but also difficult to counterfeit, marks a significant advance in counterfeiting deterrence. Issuing new, more-secure bank notes is one of four components in the Bank’s comprehensive anticounterfeiting strategy, which was developed during the most recent episode of high levels of counterfeiting.1 At the episode’s peak in 2004, the number of counterfeit notes detected per million notes in circulation reached 470, which was the highest among industrialized countries. The high levels of counterfeiting threatened to undermine Canadians’ confidence in using bank notes. The anti-counterfeiting strategy developed by the Bank and its partners has been very effective. By