On October 2, 2004, FBI and Secret Service agents seized
a shipping container that had just arrived in Newark,
New Jersey, on a ship from China. Inside the container,
under cardboard boxes containing plastic toys, they
found what they were looking for: more than $300,000
in counterfeit $100 bills. Two
months later, another shipment
with $3 million in counterfeit
bills was intercepted. Govern-
ment and law enforcement offi-
cials began alleging publicly that
these bills—which were high -
quality fakes, very hard to tell
from the real thing—were being
produced by the government of
North Korea.
The funny thing is that elabo-
rately decorated pieces of paper
have little or no intrinsic value. In-
deed, a $100 bill printed with blue
or orange ink literally wouldn’t be
worth the paper it was printed on.
But if the ink on that decorated
piece of paper is just the right
shade of green, people will think
that it’s moneyand will accept it as
payment for very real goods and
services. Why? Because they be-
lieve, correctly, that they can do
the same thing: exchange that
piece of green paper for real goods
and services.
In fact, here’s a riddle: If a fake $100 bill from North
Korea enters the United States, and nobody ever realizes
it’s fake, who gets hurt? Accepting a fake $100 bill isn’t like
buying a car that turns out to be a lemon or a meal that
turns out to be inedible; as long as the bill’s counterfeit
nature remains undiscovered,
it will pass from hand to hand
just like a real $100 bill. The
answer to the riddle is that the
real victims of North Korean
counterfeiting are U.S. taxpayers
because counterfeit dollars re-
duce the revenues available to
pay for the operations of the U.S.
government. Accordingly, the
Secret Service diligently moni-
tors the integrity of U.S. cur-
rency, promptly investigating any
reports of counterfeit dollars.
The efforts of the Secret Serv-
ice attest to the fact that money
isn’t like ordinary goods and
services. In this section we’ll
look at the role money plays, the
workings of a modern monetary
system, and the institutions that
sustain and regulate it. We’ll
then see how models of the
money and loanable funds mar-
kets help us understand mone-
tary policy as carried out by our
central bank—the Federal Reserve.Module 22:Saving, Investment, and the
Financial System
Module 23:The Definition and Measurement
of Money
Module 24:The Time Value of Money
Module 25:Banking and Money Creation
Module 26:The Federal Reserve System:
History and Structure
Module 27:The Federal Reserve System:
Monetary Policy
Module 28:The Money Market
Module 29:The Market for Loanable Funds
Economics by Example:
“Does the Money Supply Matter?”
section
The Financial
Sector
FUNNY MONEY
5
221
“The Atrain Is On the Banks,” by James Flora, 1996, © Jim Flora Art LLC; Courtesy Irwin Chusid and Barbara Economon. http://www.JimFlora.Money is the essential channel that links the various
parts of the modern economy.