The best nine cents we ever spent

You've gotta love the new $20 bills. I for one would happily accumulate an unlimited supply of these beauties. But even from a distance they offer an instructive lesson in security. And I don't just mean financial. It's a bit weird seeing a newspaper ad for money. "Get some today." Uh, I think we're all sold on the concept already. (They don't use cars to sell pretty girls.) But last week's glossy adverts of the new $20's holographs and holograms got my attention because counterfeiting has been on my mind ever since I got my first desktop scanner. No, wait, officer. I just mean I realized immediately that any hacker with a colour printer could now reproduce banknotes. Since then I've feared a return to big, bulky coins, perhaps with a goodbye-financial-anonymity chip in them. Of course you could make a bill so complicated it can't really be counterfeited, but if it costs more than it's worth it rather defeats the purpose, doesn't it?

Actually, no. Looking at last week's ads I realized a $20 bill that costs more than $20 to produce puts counterfeiters out of business, but not government. Counterfeiters only get to spend it once (minus a substantial cut to the people who take the risk of passing all those too-crisp, too-new $20s). But government, unless you live somewhere like Zimbabwe, doesn't print money to pay its bills. It does it to lubricate the wheels of commerce. A $20 bill that circulates for years, changing hands dozens of times in transactions totalling thousands of dollars, is a bargain at $25. Hey, they got one right.

Unlike me. I phoned the Bank of Canada and found I was slightly off in my estimate of the cost per bill. It's actually nine cents. Oh oh. Doesn't that mean if you can fake them for, say, three times the legitimate cost you can still run off convincing $20s for 27 cents? Well, no, because the Bank enjoys rather considerable economies of scale. For security reasons they won't say how many notes of each denomination they issue a year, but senior analyst Ginette Crow told me they printed 200 million of the new $20s prior to the launch (to last on average three years, but there's no way of knowing how often they change hands).

At nine cents each, 200 million of these babies would cost $18 million. But if we assume that just over half the cost was overhead (design, machinery etc.), it's $10 million up front, then four cents per note for paper, ink, wages and so on. And obviously a counterfeiter can't run off $4 billion in fake notes to reduce average cost. People get suspicious if you're living in a rooming house with holes in your socks, one night there's all this whirring and clanking and then you're flashing billions in new notes with consecutive serial numbers. But if you invest $10 million and run off even 100,000 notes, you're not only liable to attract attention, but you've spent $10,027,000 for $2,000,000 minus the passer's cut and are an ink-stained chump.

So far so good. Some would say don't carp, it's government. Quit while you're ahead. But there was something else weird about those ads. Here they've gone to all the trouble of devising a really secure banknote and then they give away all the secrets. One columnist asked, "Is this smart?" Yes. It's the smartest part.

Some security features only work, or work far better, if your adversaries don't know about them, like the combination of your safe or where they put the Secret Service guys in the White House. But others, like refusing to negotiate with kidnappers or Mutual Assured Destruction, only work if your adversaries do know (remember Dr. Strangelove's anguished "Why didn't you tell us?" about the Soviet doomsday machine?).

A third, problematic category in an open society is things you're not sure whether to discuss, like genetic research that could be used for bioterror or security flaws at nuclear power plants. But anti-counterfeiting falls into yet another category: Measures that only work if the public knows about them.

It's like those old Wild West "Wanted" posters. True, they alerted John Q. Varmint that the authorities were after him, knew what he looked like and had a pretty good idea where he was. But the benefits far outweighed these costs because the sheriff needed assistance from John Q. Public to spot him before he got away, not technical help identifying his corpse if he finally turned up dead.

Likewise, money may talk, but it never says where it's from. So it's no good making bills hard to fake unless the first innocent person who gets passed a false note spots it. The Bank of Canada got that part right, too.

Wow! These new $20s are an idea so good you can take it from the Bank.

[First published in the Ottawa Citizen]

ColumnsJohn Robson