- The Washington Times - Monday, September 10, 2001

The Bureau of Engraving and Printing must destroy at least 40 million $5 bills as well as paper for 286 million more bills because of a contractor's mistake, The Washington Times has learned.
Officials are investigating how the papermaker's error on unique high-tech security stock meant to produce $5 bills with a face value of $1.632 billion went undetected through an extensive series of inspections, The Times was told.
That total represents 23 percent of all the new cash the Federal Reserve has ordered for the next fiscal year, but a spokesman said the Fed has plenty of currency on hand and no shortage is expected.
The paper is flawed because its polymer security strip, intended to be visible only when held up before a bright light — revealing a microprinted "USA FIVE" and a flag containing a "5" — can be seen on the surface when the bill lies flat.
That security strip also glows blue under ultraviolet lights that detect counterfeits.
The strip, between two layers of paper on the left side of each $5 bill, is meant to confirm the currency denomination to the naked eye when held up to a strong back light. The fact that the strip was visible on the bill's surface would make genuine bills look counterfeit. Similar strips are in different locations on other denominations.
The faulty paper from Crane & Co., Dalton, Mass., recalls a similar error involving $100 bills in 1997, when the relative positions of the patented polymer strip and a special watermark were transposed. That incident involved 46,000 bills, some of which became collectors' items.
Although government officials wouldn't confirm details, a government source familiar with the production problem told The Times that the new error involves 510 "loads" of paper — enough to print 326.4 million $5 bills scheduled to go into circulation in the fiscal year that begins Oct. 1.
The work that must be discarded was produced at the government's Fort Worth, Texas, plant, which can print almost 20 million bills each day. A "load" of paper is 20,000 sheets, and 32 bills are printed on each sheet.
Federal printers in Fort Worth used 63 of the 510 "loads" before the error was caught and production stopped, the source said. Apparently the problem went undetected even through final inspection, which occurred before sheets were cut in half and overprinted with serial numbers and the Federal Reserve seal.
None of the defective $5 bills was placed in circulation, said Jim Hagedorn, a spokesman for the bureau of Engraving and Printing.
The Federal Reserve spokesman said the agency was notified of the problem, which it said was discovered as "part of [the bureau of Engraving and Printing] enhanced quality control procedures."
"The Federal Reserve has an ample supply of $5 notes in inventory to comfortably meet the demands of depository institutions," said the spokesman. He said the banking system estimates it will need $7 billion to $8 billion in new currency in the coming fiscal year.
As of July 31, the U.S. currency in circulation totaled about $570 billion, two-thirds of which are $100 bills.
Mr. Hagedorn confirms the error was detected at the Texas plant in the last two weeks, but said he had not learned specifics about the scope of the problem, its exact cause or cost, who must pay the tab, or why it was not detected sooner.
"It was detected, which is the reason we know about the problem," Mr. Hagedorn said. "We determined there is a problem which we believe is from our supplier."
Production costs for U.S. currency average about 5 cents per bill, or about $2 million for the $201.6 million in faulty $5s actually produced. Estimates of the cost for the additional paper that must be replaced range from $3 million to $6 million.
"The bureau will take whatever steps are appropriate after all the facts are known," Mr. Hagedorn said.
Lansing E. Crane, chief executive officer of Crane & Co., sent word through his secretary that he would not comment on how the mistake escaped detection or discuss financial liability. He referred all questions to the bureau of Engraving and Printing.
The bureau appears to assume that the faulty shipment will be replaced by the Massachusetts firm. Crane & Co. has supplied paper for U.S. currency since 1879 and holds patents on the papermaking process — a process that includes using colored threads from recycled denim jeans to authenticate currency. The polymer strips have been used for about 10 years.

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