Printing error produces a billion unusable $100 bills

(BLOOMBERG)

More than a billion $100 bills, representing roughly 10 per cent of the entire stock of US currency on the face of the Earth, is being stored in two highly-fortified Government warehouses after printing problems left it unusable.

Officials say a production error means that as many as 30 per cent of the notes, printed at a cost of roughly $120m, have been left with a blank strip on their face, which only appears after they are pulled flat.

They are now trying to design and build a machine that can identify the faulty $100 bills and separate them from the correctly-printed ones. Sorting them by hand would take workers between 20 and 30 years, they estimate, whereas a mechanical system would complete the task by 2012.

The embarrassing mix-up came after the Federal Reserve decided to relaunch America's most valuable banknote, which carries a host of new security features to thwart counterfeiters.

Printed on expensive cotton-and-linen-fibre paper, the notes are adorned with a colour-shifting image of the Liberty Bell along with a 3D strip which appears to move in the opposite direction to the one in which the note is moved. They are the first banknotes to carry the signature of Barack Obama's Treasury Secretary Tim Geithner.

Although the features mean the notes have a highly-complex production process, they were initially due to roll efficiently off the presses and enter circulation in February. That release date has now been suspended indefinitely.

The US network CNBC, which broke news of the mix-up, quoted an official familiar with the situation saying that at the height of the printing problem almost one in three of the notes rolling off the presses carried the flaw.

No one yet knows what caused the problem, or why it was not immediately rectified. "There is something drastically wrong here," said the official. "The frustration level is off the charts."

The Treasury insists it is confident that the vast majority of the new bills will eventually be cleared for circulation. In the meantime, they have resumed production of old-style $100 bills to stave off a cash shortage.

"A very high proportion of the notes will be fit for circulation," said Darlene Anderson of the Treasury Department. "We are working really hard to try to get a solution to the problem ... We are trying to ensure that only the fittest notes will enter circulation."

No one has apportioned blame for the problem, but Treasury sources say they are investigating whether it came from a faulty supply of paper from Crane & Company, a family firm from Massachusetts which has supplied the paper for banknotes since 1879.

"The Fed's very unhappy, and the Bureau of Engraving and Printing is taking a beating unnecessarily," one insider told CNBC. "Somebody has to pay for this."

Counting the dollars

6 The cost in cents for the production of each dollar bill, paid by the US Government.

10 The number of years taken to develop innovative security features for the new $100 bill.

62m The value of counterfeit dollars in circulation in 2006 (the latest publicly known figure).

131 The number of years suppliers Crane & Company have provided the paper for dollar printing.