Priceless art for just a fiver: International bankers are having to deploy design, technology and psychology to keep ahead of the forgers, says Jonathan Eyal

DE LA RUE, the world's largest currency printer, has just reported a rise of 24 per cent in its pre-tax profits, boosted by a large increase in banknote printing. The British-based company has done well out of the collapse of Communism and the creation of new states: it now commands two- thirds of the available international market.

But the company's success is also part of a much wider story: the constant fight of central banks against currency forgery. De La Rue's increased profit margins are due to the creation of new measures to beat the counterfeiters.

Any banknote is the culmination of years of meticulous research, a blend between art and forensic science. Every note has to be pleasing to the eye, politically 'correct', easy to handle, accessible to the handicapped, difficult to forge and cheap to produce at the same time.

The Bank of England (which prints its own money) has recently introduced a new pounds 50 note, which completes an overhaul of the English currency begun with the introduction of a new pounds 5 note in 1990. It also has a novel security feature: a metallic silver foil bearing the Royal Cipher and an English rose. Years of research and meticulous documentation preceded its production: the budget of the Bank for such activities alone runs at pounds 700,000 a year.

Every English note includes a series of security features that can be observed by the naked eye, and additional, often secret, details that require sophisticated detection equipment. This is a double defence intended to ensure that neither individual forgers nor potentially hostile governments could fool the bank for long.

For three centuries, counterfeiting paper money required artistic flair and audacity. The time lag between the introduction of a new note and the appearance of the first illegal copies averaged two years, and very few were able to do it. Because forgers required some skill, they were usually regarded by the population at large with a mixture of distaste and respect. Charles Price, an 18th- century London forger, became the subject of a few histories and went down in mythology as 'Old Patch'. But the problem was not exactly serious.

Although the number of forged notes remains small (a fraction of 1 per cent of an estimated pounds 16bn in circulation), technology has transformed the equation: a good colour photocopier or computer scanner can reproduce a banknote in seconds. A band of electronic forgers arrested in America last month elevated their occupation to the status of a political belief, claiming they were fighting against the supposedly 'illegal' constitutional status of the US Federal Reserve.

The activities of forgers can now be detected within weeks after a new note is issued. But the growth in tourism and the abolition of currency controls opens up new venues: forged German mark notes, for instance, are easier to pass off as genuine in countries other than Germany itself. Forgers have also profited from the nearly convertible status of East European currencies and their relatively new and unfamiliar appearance: seizures of counterfeit Polish zlotys and even Russian roubles have been notified throughout Europe. And, since forgers no longer need to engrave special printing plates, even the smallest denominations of a currency are vulnerable.

Most banknotes now incorporate several other anti-forgery features: even finer engraving intended to confuse photocopiers; geometrical patterns that become clear only if printing on both sides of the note is properly aligned, pastel shades that are difficult to copy and metal foils that turn black on photocopies. Some, like the Australians, have gone even further by issuing plastic money, while the Dutch authorities have almost abandoned the notion of art on the banknote in favour of security: the new 100 guilder bill contains a bewildering array of meaningless shapes in bright and subdued colours, sprayed with fluorescent paint, and some helpful printed notes on how to detect a forgery.

The Bank of England, however, continues to rely on a combination of design skill and psychology. Years of testing have proved that portraits on notes are difficult to forge: most people would be hard-pressed to recall the shape of the smoke billowing out of Stephenson's Rocket on the pounds 5 note, but almost everyone will realise in an instant if the Queen's portrait is not quite right.

Like many British habits that acquire the status of a 'tradition' after they have been performed only a couple of times, the appearance of the sovereign's face on the English currency is a relatively recent phenomenon: apart from a short period during the First World War, English legal tender started depicting the sovereign only from the late Fifties. And, as a recent book on the history of English notes points out (Promises to Pay by Derrick Byatt, Spink, London, pounds 35) Bank officials were not particularly patriotic about it, merely relieved that they no longer had to fight over whose face should be on the notes.

The Bank also discourages the use of ultra-violet lamps in the detection of forgeries, mainly because it fears that such devices could detract from the test that should be performed automatically by every user with the naked eye: the quality of the printing, the watermark, the metal thread and, above all, the unique feel of its legendary paper.

Yet the Bank's discouragement of the use of ultra-violet lamps has its amusing side, for it was just such a lamp that detected the most sustained attack on the English currency ever: the mass counterfeiting of notes by Nazi Germany during the Second World War. And that episode illustrates a further problem: the most dangerous forgeries likely to be encountered may well come from another government, rather than from individual scoundrels. During the Gulf war, Saddam Hussein was persuaded to withdraw some of Iraq's banknotes by hearing that the United States was about to swamp his country with forged dinars. Many countries keep emergency currency designs for such eventualities.

Paradoxically, the currency most widely used around the world is also the easiest to forge: the design of the US dollar has remained largely unchanged since the Twenties. The 'greenback' is not multi-coloured, has no watermark and, until a few years ago, did not incorporate a security thread. American officials, who always liked to claim that forgeries were minimal, have now fallen silent. And for good reason: a plague of forged dollars 100 bills has spread, particularly in Asia. In the past six months there have been two large seizures of forged notesin Hong Kong alone, and traders and banks in the Middle East now routinely regard all US dollars with suspicion. The feeling in the American intelligence community is that some of the forgeries are carried out by governments, especially those of Iran, Syria and North Korea. The die seems to be cast: the Americans are likely to announce a major overhaul of their currency design in the near future.

For the moment, however, both the Bank of England and the De La Rue company, which caters for many smaller states, believe they can keep up with the forgers. They may be helped by the increase in cashless, electronic systems of payment. For the time being, though, banknotes will continue to incorporate both art and security features in equal measure. They will often carry subtle political messages as well. In the Fifties, the Bank of England designed a series of notes portraying Sir John Houblon, its first governor. The series was shelved because Sir John's appearance could have been construed as the Bank's declaration of independence from the government. Sir John Houblon now adorns the new pounds 50 note. Is the Bank trying to tell us something?

(Photographs omitted)