CONTINUED PROBLEMS WITH THE NEW $100 BILL

A significant production problem with new high-tech $100 bills has caused government printers to shut down production of the new notes and to quarantine more than one billion of the bills in huge vaults in Fort Worth, Texas and Washington, DC, CNBC has learned.

Initially scheduled for release in February of 2011, the new bills were announced with great fanfare by officials at the Treasury Department and the Federal Reserve in April.

At the time, officials announced the new bills would incorporate sophisticated high-tech security features, including a 3-D security strip and a color-shifting image of a bell designed to foil counterfeiters.

But the production process is so complex, it has instead foiled the government printers tasked with producing billions of the new notes.

An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face.

A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.

The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet, which a government source said is $930 billion in banknotes. For now, the unusable bills are stored in the vaults in "cash packs" of four bundles of 4,000 each, with each pack containing 16,000 bills.

Officials don't know exactly what caused the problem. "There is something drastically wrong here," a person familiar with the situation said. "The frustration level is off the charts."

Because officials don't know how many of the 1.1 billion bills include the flaw, they have to hold them in the massive vaults until they are able to develop a mechanized system that can sort out the usable bills from the defects.

Sorting such a huge quantity of bills by hand, the officials estimate, could take between 20 and 30 years. Using a mechanized system, they think they could sort the massive pile of bills, each of which features the familiar image of Benjamin Franklin on the face, in about one year.

The defective bills—which could number into the tens of millions, potentially representing billions of dollars in face value—will have to be shredded. American taxpayers have already spent an enormous amount of money to print the bills.

According to a person familiar with the matter, the bills are the most costly ever produced, with a per-note cost of about 12 cents—twice the cost of a conventional bill. That means the government spent about $120 million to produce bills it can't use. On top of that, it is not yet clear how much more it will cost to sort the existing horde of hundred dollar bills.

After they were printed, officials discovered that some of the new bills have a vertical crease that, when the sides of the bill are pulled, unfolds and reveals a blank space on the face of the bill. At first glance, the bills appear completely printed, but they are not.

Officials have mixed views on what caused the problem, and who is responsible for it. "This is not about assigning blame," said one. But another person familiar with the matter said finger-pointing has already begun. "The Fed's very unhappy, and the Bureau of Engraving and Printing is taking a beating unnecessarily," the person said. "Somebody has to pay for this."

To read the complete article, see: The Fed Has a $110 Billion Problem with New Benjamins (www.cnbc.com/id/40521684)

To read the complete article, see: Updated $100 Bills May Be Too Tough To Print (www.npr.org/2010/12/07/131884481/New-100-
Bills-May-Be-Too-Tough-To-Print)

E. Tomlinson Fort adds:

The United States government is having a little trouble printing up its newly designed $100 bills. More than 1 billion of these new Benjamins are unusable because they crease in the presses, leaving blank spots on the final product. It's an amusing minor story whose true significance has been missed. Why does the world need 1 billion $100 bills? Indeed, why does the U.S. continue to print C-notes at all?

In May 1976, an economist named James Henry published a wonderful essay in the Washington Monthly titled "Calling in the Big Bills." In it, he observed that "only two kinds of activities in the U.S." required the use of large-denomination currency. One was tax evasion, and the other was organized crime. Henry might also have added certain legal but morally dubious needs, like a compulsive gambler's need to hide his addiction from his family or a billionaire braggart's need to light his cigar with a flaming C-note (though the latter type is probably a creature of myth). In his 1976 piece, Henry proposed that the Treasury and Federal Reserve call in all bills of $50 or more and require holders to exchange them in banks for $10 and $20 bills.

Thirty-four years of inflation make Henry's inclusion of $50 bills seem perhaps overzealous, but, otherwise, his argument has become more compelling, not less.

To read the complete article, see: Ban the Benjamins! (www.slate.com/id/2277404/)

Wayne Homren, Editor

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