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Funny money Unfunny consequences.

Reading this book explains a curious incident. In the mid-1990s I had flown into the capital of an East African country and tried to change some US dollars into the local currency at an airport bureau de change. Point blank, the teller refused to accept a $100-dollar note. When I asked why he just said "we do not accept $100 notes sir". There were in fact two exchange facilities at this airport and I went to try the other one. The same response; they also refused my $100 note.


I then asked for a cash advance against a credit card. Although it was a lengthy process to phone the card centre for authorisation, I eventually got enough local cash to pay for my taxi and hotel room. But I was left wondering: Why my $100 had been refused?

The answer, it seems, was that at that time Africa was being flooded with so-called 'super notes'--counterfeit $50 and $100 notes so expertly forged that unless examined by experts under the microscope they were indistinguishable from the real thing. They even passed the detector machines the banks used and were turning up in epidemic proportions, their one weak spot being their serial numbers. The banks were being hit hard--so hard that they started refusing to accept the US currency in these two denominations, hence the attitude of these two airport bureau de change.

The 'super notes' origin was variously described Iran, Lebanon, Syria or North Korea. No one knew for sure, or if the authorities did they were not making it public knowledge. But whoever was producing these fakes had specialist equipment in the form of high-pressure printing presses, access to the right paper and inks as well as, it was speculated, being in possession of stolen US Treasury printing plates. So perfect were these notes that the US even took the decision to, ahead of schedule, redesign their notes.

While nobody knows where the super-notes were being produced, it is widely believed the operation had state backing. The motives of the prime suspects were two-fold: to raise funds by selling on the notes to organised crime and to damage the economy of the US by attacking its currency. But these motives were hardly new. As author John K Cooley explains, counterfeiting currency is an age-old form of economic warfare waged by states to destabilise enemy governments. Examples of counterfeiting stretch back into antiquity and are to be found in ancient Greece, Persia, Rome and China.

He points out that no one knows how much counterfeit money circulates the world today. The West's major regulatory and enforcement agencies, i.e. the Bank of England, US Treasury and European Central Bank from time to time issue statistics on forged notes detected and seized but what false currency is still out there is, as the authors notes using a Churchillian expression, "a riddle within an enigma".

And it is not just banknotes that are being forged--one estimate has it that 10% of all euro coins are fakes. Furthermore, Cooley points out that the current Bush administration has yet to disclose what proportion of the $50 and $100 notes seized by the US invaders of Iraq in 2003--most of the billions allegedly plundered by Saddam Hussein from Kuwaiti banks during his occupation of the Gulf oil emirate in 1991--were found to be counterfeit. This, he suggests, is typical of the entire secrecy policy of the US, British and other leading Treasuries, anxious not to undermine confidence in their currencies. As the famed economist, John Maynard Keynes is quoted as stating: "There is no subtler means of overturning the existing basis of society than to debauch the currency."

For the very sovereignty of the nation state is bound up in the currency it issues or adopts. Take, for example, the CFA--widely used by most Francophone West African states. Its value is pinned against the euro, and many Africans view its continued existence as making a mockery of the post-colonial' independence' of the African states that use it. They argue that it symbolises a continuing state of neo-colonialism. When civil conflict in Cote d'Ivoire flared up and rebels in the north of the country seized billions in CFA notes from the vaults of a commercial bank--the country's central government requested that the French authorities redesign the CFA banknotes to make the stolen money worthless. The rebels, it was believed, would be unable to launder such a vast amount of old style currency. This proposal was agreed upon and a new set of notes was issued. But just imagine if the rebels, rather than stealing this money, had managed to counterfeit it? The consequences would have been very serious if only because suddenly they would have had the means to buy large amounts of arms and possibly lure loyalist soldiers into their ranks with the promise of large salaries.

Colonial conspiracies

As far as is known, none of Africa's major currencies has ever been subjected to large-scale counterfeiting. But during the colonial era there were some huge schemes to undermine the governments of colonial powers through attacking their currencies, and the battleground was Africa. Furthermore, the outcome of these battles had far reaching consequences that, it can be argued, changed the course of history.

Quoting John Maynard Keynes again, the author of Currency Wars attempts to describe just what led to the First World War. Keynes noted: "There was nothing very new to learn about this war or the end it was fought for: England had destroyed, as in each preceding century, a trade rival." And what better way to destroy a trade rival than to undermine its economy, as an act of war, by ex-pertly forging the enemies' currency? This is exactly what Britain did in a top-secret operation during the First World War. When the war began, British forces captured many German colonies around the world fairly easily, but German East Africa proved a far harder proposition. Britain's Royal Navy bombarded the coastal German garrisons at Bagamoyo and Dar es Salaam, but the German commander General Paul Emil von Lettow-Vorbeck led a brilliant rear-guard campaign leading just 3,000 European forces and 11,000 African troops against the combined might of the British Allied forces.


Lettow-Vorbeck waged a highly mobile hit and run guerrilla-style campaign that was still humiliating the British allied forces when the armistice was signed in 1918 ending the war in Europe. During his four-year campaign, he had tied up almost a million allied troops from the Ivory Coast, The Gambia, Nigeria, South Africa, British East Africa, Uganda, Zanzibar, the Belgian Congo and Mozambique as well India, the West Indies and Britain itself.

The British, for their part, had earlier in the conflict undertaken a counterfeiting campaign against German East Africa and produced fake Reichmarks to damage the German colony's economy. Later they turned to producing fake German East African postal stamps and the 'interim Rupein banknotes' the Germans introduced when the British blockade of the seaports denied the local banks fresh supplies of the standard German currency.

The after-effects of the Allied operations were profound. The counterfeiting of German Reichmarks, Cooley writes " ... speeded [postwar] inflation, hyperinflation and the ruin of Weimer Germany's economy and middle class. These in turn paved the way for the rise of Adolph Hitler and the fascist Nazi Party".

Extraordinary circumstances

Arguably as profound was the work of a clever Portuguese forger, Alves Reis. Having forged mechanical engineering qualifications to avoid the military draft in the First World War, when Portugal fought alongside Britain, Alves emigrated to Angola (then a Portuguese colony). He first used his engineering skills to help repair Angola's ageing railway locomotives before helping a settler friend save his tobacco crop by installing an irrigation scheme.

He then dabbled in the war surplus business, made some money and returned to Lisbon where he set up a trading company. But an economic downturn almost ruined the business. As a last resort he turned to fraudulent financial transactions that first secured him a controlling interest in the Trans-African Railway Company of Angola (Ambaca). He then used Ambaca's cash to buy the South Angola Mining Co whose shares he then 'ramped' on the Lisbon stock market. His luck ran out and he was jailed for fraud, but while in jail he hatched an audacious scheme--to gain control of the Bank of Portugal and, ultimately, both Portugal and its colonies including Angola and Mozambique.

The plot revolved around the extraordinary fact that the Bank of Portugal was semi-private, the government holding only a minority shareholding. His plan was to forge a letter of authority to dupe the Bank of Portugal's official banknote printer, a London-based firm, to print 200,000 notes for use in Angola. The printer wrote to the governor of the Bank of Portugal, Comacho Rodriguez, (whose signature Reiz traced from a banknote to authorise the transaction) to confirm this order, but the letter never reached Lisbon. If it had, the author speculates, Angolan and Portuguese history might have taken a very different course.

Despite not receiving confirmation from the Lisbon authorities, the print run was executed and the new banknotes delivered to Reiz and his gang. They began to launder the illicit notes by buying other currencies, even establishing their own bank, the Bank of Angola and Metropolis, to assist in the plot. The notes were perfect as they used legitimate paper, inks and printing plates. The only flaw was the serial numbering system that would identify them as an unauthorised issue, and before Reiz could execute his daring plan to buy up a majority of Bank of Portugal's shares (and the colonial economies of Angola, Mozambique, Guinea Bissau, Cape Verde and Sao Tome & Principe for that matter), the conspiracy was uncovered through the suspicions of a bank teller in Oporto, Portugal.

As soon as the plot was revealed, the consequences were extraordinary. Reiz and his fellow plotters ended up in jail of course, but Portugal's financial system was shaken to its core. The resulting chaos and confusion, our author argues, led directly to the rise of the Antonio Salazar, first as Portugal's minister of finance in 1928 then as prime minister in 1932 and the head of a fascist dictatorship that ruled with a rod of iron until 1968. The appalling history of the Salazar regime's brutal response to the independence movements in Portugal's African colonies and the activities of his notorious PIDE secret service are well documented, but there was another consequence to Reiz's audacious conspiracy. As a direct result of Reiz's ultimately unsuccessful plot, Interpol was created in 1923 to deal with international crime and law enforcement. Today, one of Interpol's chief areas of concern is to detect the crime of counterfeiting currency--which for sub-Saharan Africa, still primarily a cash economy, poses such a threat.

Currency Wars

By John K Cooley

[pounds sterling]18.99 Constable

ISBN: 978-1-84529-369-7
COPYRIGHT 2008 IC Publications Ltd.
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Author:Cooley, John K.
Publication:African Business
Article Type:Book review
Date:Jun 1, 2008
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