The condition of nation’s cash supply is the Fed’s business, and that includes making sure the money is in good shape. There are all sorts of ways currency gets ruined. It could be a child drawing on a $5-bill with a crayon. It could be a natural disaster. How does the Fed get bad bills out of circulation?

And how does it make sure the bills are genuine in the first place? Counterfeiters never stop trying to come up with new ways to pass fake bills. And the Fed’s experienced cash-handlers and advanced technology never stop trying to make sure they can’t.

Allison Ross:

Arian Panariti seems like a regular guy until you put a fake 100-dollar-bill in his hands. The business of this longtime Federal Reserve employee is your money, and he knows things about it you probably don’t.

Is the bill too worn, beaten, or battered to be used at the corner store or exchanged abroad?

Is it even real?

If a bill is flagged by the sorting machines, it’s Panariti’s job in Boston Fed’s Cash Services department to help answer those questions. And he’s seen and handled so much currency in his life that he can tell with near perfect accuracy if the note is genuine or counterfeit.

Arian Panariti:

After you work with currency for a long time, and you are exposed to currency every day, you get almost like a sixth sense.

Allison Ross:

That intuition comes from years and years of security training and certifications.

To Panariti, the condition of U.S. currency – including whether it’s even genuine – isn’t just about keeping commerce moving and the economy strong. It’s also about national pride. 

Arian Panariti:

So, the U.S. dollar is the most popular currency in the world. Thus, it has to be in great condition, that’s a given. So, if we have worn out currency in circulation, that could diminish the integrity of our currency and its reputation.

Allison Ross:

I am Allison Ross, and this is Six hundred Atlantic. In this season, we are taking a look at cash. In our last episode we discussed the recent drop in cash use, but we also noted it remains in major demand all over the nation. We also covered the Fed’s role in meeting that demand.

Now, we want to take a look at the cash supply, including how the Fed keeps it real, and in good shape.

We’ve all been to vending machines and had our money rejected. How does the Fed get bad bills like those out of circulation? It’s important, because let’s face it – we all hate getting rejected by the vending machine.

But we’ll start with how the Fed makes sure your bills are genuine in the first place – and how it weeds out those bills that aren’t. Counterfeiters never stop trying to come up with new ways to pass a fake bill. And guys like Panariti never stop trying to make sure they can’t.

Panariti is the operations supervisor at the Boston Fed and has worked in the Cash department for a long time.

Arian Panariti:

Oh, too long, 29 years.

Allison Ross:

The “sixth sense” for counterfeit currency Panariti says he’s developed is the product of that accumulated experience.

Arian Panariti:

It’s almost like a natural ability when you are touching currency all day, it is all genuine, you get a feel for the currency. So, as soon as you’ve touched something that is out of the ordinary, which most likely is a counterfeit printed on a regular piece of paper, you get that sense that there’s something wrong with it, like a gut feeling.

Allison Ross:

Of course, counterfeit U.S. bills far predate the Federal Reserve System’s founding in 1913. But the Fed’s formation did come at time when the nation was at war, with bad actors producing counterfeit bills. So, 111 years later, is counterfeiting still a problem? According to Panariti, the numbers are low, especially when you consider the Boston Fed processes more than one billion notes a year. But the threat to the integrity of U.S. currency is real.

Arian Panariti:

And we found about 2,700 counterfeits throughout all those notes, so it’s a minute amount, but it is still significant.

Allison Ross:

And that’s just for 2022.

When a note arrives at the Fed, it faces the scrutiny of processing machines. The machines have sensors that are meticulously looking at each individual bill.

Arian Panariti:

The main features that the sensors are looking for is the paper needs to be genuine. It has to have the little red and blue fibers throughout the note. There’s a plastic thread in most denominations, especially 10s and above, 10s, 20s, 50s, and 100s. The quality of the print, the quality of the ink. There’s a watermark in all the notes but the one-dollar bills. There’s a color-shifting ink technology that’s been introduced to the latest designs. And there’s a lot more that I can’t tell you.

Allison Ross:

And we won’t ask. Sorry, counterfeiters, we won’t be giving away that formula on this podcast.

When the machine detects a bill might be counterfeit, that’s when experts step in, like Panariti – and officials at the U.S. Secret Service, who are responsible for counterfeiting investigations.

Arian Panariti:

When the machines deem a note as a counterfeit, the note will be rejected, the note will be put aside, and cash handlers, which are counterfeit certified, would pretty much say, “Yep, this is a counterfeit.” We collect those counterfeits on the weekly basis, and we ship those to the Secret Services, where there’s a lot more information attached to the counterfeit. And the Secret Services does trending, they go after the bad guys.

Allison Ross:

But isn’t all about responding to phony bills. The work to stop counterfeiters is on the prevention side, as well. Every couple of years, the Bureau of Engraving and Printing – known as B-E-P – comes out with new designs.

Arian Panariti:

So, every denomination, the 5s, the 10s, the 20s, the 50s, and the 100s, have pretty much three designs. They’ve gone through a redesigning process, and that’s to stay ahead of the counterfeit makers. Also, there’s new and sophisticated security features added to currency.

Allison Ross:

Karina Santeliz works in Cash Services at the Boston Fed and says that those new security features include something that counterfeiters can’t replicate – the ink on bills.

Karina Santeliz

The BEP also specially formulates and blends their own black-green ink. They also have color-shifting ink for the 10s and higher and some metallic inks for the freedom icons that you’ll find on the 10s, 20s, and 50s. And then all of this also undergoes continuous quality testing. And the formula that’s used for the inks, for example, is nowhere as simple as it sounds, but we would never be able to have access to it.

Allison Ross:

The work to make the U.S. notes tough to counterfeit has paid off. When counterfeit notes are found, they usually aren’t common enough to be found by individual consumers. Steve Son is the senior vice president of FedCash Services. He works as a nationwide conduit between depository institutions and the Federal Reserve System. He says most suspected counterfeit notes come from commercial banks and their currency processing. And the Secret Service says there just aren’t that many.

Steve Son:

And so, when we talk to the Secret Service, what we learn is that, while counterfeiting of U.S. dollars continues to be an issue, you know, the trends there are not over-problematic or are not increasing significantly.

Allison Ross:

So far, we’ve looked at the Federal Reserve’s effort to keep fake notes out of circulation. But it’s just as concerned with removing authentic notes that are too far past their primes. Maybe they’re torn, maybe they’re soiled, maybe they’re just limp and beaten. The Federal Reserve wants to get rid of all that dirty cash, and they have a lot of cash to check. As we discussed earlier, the Boston Fed processes more than a billion notes annually.

Arian Panariti:

For 2022, it was almost 1.2 billion notes is what we processed here at the Federal Reserve. To be exact, it was one billion, 189 million, 943 thousand. That’s quite a lot of notes.

Allison Ross:

According to Santaliz, most bills will pass through the Fed roughly every other year. Think of it as a bi-annual checkup. Although with this checkup, there is no fixing the damaged bills.

Out of the 1.2 billion notes that pass through, most are in fine shape. One reason is that the “paper” money is printed on is pretty durable. U.S. currency is 25% linen and 75% cotton, which is why it feels more like cloth than paper.

But even though all bills are created the same, some are used far more than others, so the lifespan of the denominations varies significantly.

Arian Panariti:

A 1-dollar bill, as far as the paper is concerned, has the same durability and features as the 100-dollar bill. Now, the lifespan of a dollar bill is about 18 months, and then the lifespan of a 100-dollar bill is almost 5 years. And the reason for that is you treat a dollar bill with not the same respect as you treat a 100-dollar bill, so wear and tear – the most common denomination is 1s and the 20s – so there’s a lot of wear and tear on those notes.

Allison Ross:

As the bills age, it is Panariti’s and others’ jobs to make sure that the cash in circulation meets a standard called “fit for commerce.” The notes that don’t meet the grade get destroyed on the spot. 

And there are all sorts of ways currency gets ruined. It could just be time. It could be a child drawing on a 5-dollar bill with a crayon. It could be a natural disaster, like the flooding in Vermont that we saw last summer. Whatever causes the damage, the sensors will know if that bill isn’t up to snuff.

Arian Panariti:

There’s a sensor that actually looks for the soil level. So, if the currency is soiled, the sensors would actually automatically shred it.

We destroyed about 136 million pieces of currency in 2022, that’s quite a lot of money that we destroyed. And that’s roughly about 11.5% of all the currency that comes to the Federal Reserve is destroyed, that’s for 2022.

Allison Ross:

But those shreds don’t go to waste. If you’re listening to this podcast on a phone, there’s a small chance that the shreds helped power the battery. Here’s Santeliz.

Karina Santeliz:

Our shreds are shipped to a local incinerator, where it’s then turned into electricity for surrounding communities. And we are 1 out of 10 Reserve Banks or cash offices that assist with, that assist the public with, power from U.S. currency.

Allison Ross:

Son said that, even if they’re not going to be burned for power, the Fed asks its cash offices to find ways to recycle the shreds.

Steve Son:

Currently we have a number of offices that are engaging in using shredded currency for insulation, eco- friendly power generation, compost for soil and fertilizers, things like that. Now, that’s really dependent on local restrictions, laws, and local options available, but we ask all of our cash processing center locations to explore options like that and find ways to try to recycle the material.

Allison Ross:

Son says that cash has a shown it has a place in a digital age, even with all the cool and convenient new payment methods, in part because it developed before digital tech and can stand on its own without it. To explain that, Son uses the analogy of the gleaming, modern skyscraper. It’s probably built with shiny escalators and the latest in high-speed elevators. But it’s also undoubtedly got some stairs.

Steve Son:

And so, when you think about the payments landscape, you know there is a lot of these new fancy and technologically savvy payment instruments that have been and continue to be introduced. But cash tends to be that staircase. It continues to be the one payment instrument that works in all cases whether you have power, whether you have connectivity with cell towers and phone lines.

Allison Ross:

Son adds that when it comes to the future of cash, it isn’t ultimately up to the Federal Reserve.

It’s up to you.

Steve Son:

At the Federal Reserve we are very agnostic about the use of cash. Our mission and our goal really again is as long as the American public has a desire to want to use it, that our job is to make it available to them through depository institutions and banks. I think that this is something that we will continue to watch in terms of what the future demand for cash will be.

Allison Ross:

Cash is a big part of what we do at the Fed, but it’s just one way the Fed supports the U.S. payments system.

For instance, the Fed provides much of the back-end infrastructure that underpins the financial system and enables stable, reliable payments. The Fed also supports direct deposits, wire transfers, and a new service called FedNow.

FedNow allows individuals and businesses to instantly send and receive payments through their financial institutions and access their funds immediately. No one is stuck waiting for their funds to clear.

So, there are many ways that the Fed helps keep money moving. Cash happens to one of the only ways where we still need actual roads. As long as the public wants cash, we’ll keep moving it, securely and efficiently, note after note.

You can find more information on everything discussed today and so much more on our website. And don't forget to check out BostonFed.org/SixHundredAtlantic, where you can listen to interviews as well as our podcast seasons. You can also subscribe to our email list to stay up to date on new episodes. And please rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app.

The podcast producers would like to thank our contributors for their time and insights. They are Shaun O’Brien, Arian Panariti, Lisa Perlini, Karina Santeliz, and Steve Son.

Six Hundred Atlantic is a Federal Reserve Bank of Boston podcast hosted by Jay Lindsay, Allison Ross, and Amanda Blanco. This season was produced by Allison Ross and Peter Davis. Executive producers were Lucy Warsh and Heidi Furse. Recording and engineering by Allison Ross. Project managers were Peter Davis and Nathan Clark. The podcast was written by Allison Ross and edited by Jay Lindsay and Nick Brancaleone. Graphics and web design by Meghan Smith. Consultants were Lisa Perlini and Steven Son.

I'm Allison Ross, signing off for another season of Six Hundred Atlantic. Thanks for listening.