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Has any state ever performed an "economic attack" against another state, by printing fake money of the victim's currency?

Or, is it known if someone ever considered doing it, and which were the supposed pros and cons?

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Yes, Greece tried it once (allegedly), but the plan backfired horribly. I remember reading about it in the newspaper, not sure I'll be able to find reliable sources, it was a while ago. –  Yannis Rizos Jan 28 '13 at 16:45
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No, against FYROM, sometime in the early 90s. I distinctly remember reading the story in a major newspaper, but can't find a source, so treat this as highly anecdotal and possibly false. The story, as I remember it, was that the National Intelligence Service wanted to flood FYROM with fake US dollars and disrupt its (at the time) highly volatile economy. The plan backfired as most of the money found its way back to Greece (the countries may be involved in a bitter dispute that's been going on for decades, but that doesn't mean our economies aren't extremely intertwined). –  Yannis Rizos Jan 28 '13 at 16:59
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ISTR Germans tried to do something like that around WWII, but fail to recall any details. –  DVK Jan 28 '13 at 17:01
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This was actually a plot element in Neal Stephenson's Baroque Cycle with the King of France plotting against England's currency. However, I think the only germ of known truth in there is that Newton spent some time hunting down counterfieters. –  T.E.D. Jan 29 '13 at 14:54
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@YannisRizos I remember reading about a similar plan, again, somewhere in the early '90, but I seriously doubt it went through, most likely it withered in the planning stages. Also, at the time the currency of choice in Republic of Macedonia was the DeutcheMark, and not the dollar (currently it's the Euro) –  SWeko Jan 30 '13 at 8:07
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6 Answers 6

up vote 28 down vote accepted

Frederick II the Great, king IN Prussia 1740–1786 used to counterfeit currency of the Polish-Lithuanian Commonwealth (PLC) on a large scale, for profit and to economically weaken Polish state. Officially PLC wasn't at war with Prussia but the only reason that this and other hostile activities of Frederick the Great were unanswered by PLC was the weakness of Polish administration at that time. (and that's probably the reason why he did it).

Frederick obtained the dies for Polish coins during his raid on Saxony during the Seven Years' War (1756-1763). They were there because at that time PLC was in a personal union with Saxony.

EDIT: Wikipedia piece about this particular episode of Frederick's activity points to those books in English as sources: Hamish M. Scott, The emergence of the Eastern powers 1756–1775 and Norman Davies, Europe: A History

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Your answers's good, but are there any sources? –  Reliable Source Jan 28 '13 at 22:33
    
I'd suggest using the editing tools to link some of the text in your answer to the wikipedia page you mentioned, as well as web references to those two books (I like Amazon pages as they tend to have reviews). Do that and this gets a +1 from me. –  T.E.D. Jan 29 '13 at 17:19
    
@T.E.D. I suppose you can find mention of that in pretty much every modern book about Prussia's or Polish history or Frederick's biographies. I don't know why Wikipedia used that particular books as sources as they are quite general. I see no reason to promote them out of a multitude of possiblities. –  Jake Jay Jan 29 '13 at 18:10
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@T.E.D. I also don't want to promote Wikipedia by quoting it, as it is full of biased statements and shouldn't be considered as reliable source. –  Jake Jay Jan 29 '13 at 18:26
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@Jake this is history we're talking about here. There are no unbiased sources. –  corsiKa Jan 30 '13 at 15:38
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The US government alleges that this has occurred - see Superdollars. Very high quality counterfeit $100 bills flooded the US market. Although it may be that these were merely a way that the responsible institution was funding operations, it is commonly believed that these were also intended to cause inflation within the US by increasing the money supply. I don't see any information about the total value of the counterfeitted currency, or how that relates to MB or M1. One would need to have that value in order to have any hope of estimating the inflationary impact. (and one would have to resolve certain controversies between classical and liberal economics).

That article also references Operation Bernhard, which I think @DVK mentioned.

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you don't need inflationary impact. Merely destroying or severely disrupting the general population's trust in their currency is enough. So you inject a large volume (millions of bank notes, preferably lower denominations even as those are in wider circulation) into the system, then start rumours about it and ensure that some of the stashes are found by law enforcement. –  jwenting Jan 29 '13 at 6:52
    
I'm unsure about this answer. While it is interesting, and somewhat related, if the source of those bills is unknown, it doesn't really qualify as an "attack BY a state". –  Lohoris Jan 29 '13 at 12:43
    
Could you expand on that? I'm not sure I understand. In my opinion, If one state takes an action that has the intended purpose of diminishing the economic viability of a second state, I consider that to be an attack. (That sounds argumentative, but it is intended to be a sincere question). –  Mark C. Wallace Jan 29 '13 at 12:50
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@MarkC.Wallace I mean that in this case we don't know who printed those money, so we don't know if it was a state or a private organization. –  Lohoris Jan 29 '13 at 15:05
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That is a stellar point. We have traditionally assumed that only state actors can carry out certain types of attacks, but the modern world is teaching us that some NGO's have the power to engage in asymmetrical warfare. +1 –  Mark C. Wallace Jan 29 '13 at 15:12
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During world war 2 , Germany carried out Operation Bernhard , one of the biggest currency counterfeit attempt in history , to destabilize the economy of Britain and the United States.

The operation was named after(and started by) NSDAP member and SS Major Bernhard Krüger , who led the operation from a segregated factory built at Sachsenhausen concentration camp, manned by 142 Jewish inmates.

The operation was started initially , to forge the Bank of England pound notes in denominations of £5, £10, £20, and £50.

By 1945 the production had successfully reached 8,965,080 banknotes with a total value of £134,610,810.

Interestingly after the war , the a part of this counterfeit currency fell into the hands of the jewish underground , who used it to bring displaced persons back to Israel.

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In one of the books about the siege of Leningrad (I believe it was Harrison Salisbury's "900 Days)," the author suggested that the Nazis might have captured the city by printing and "distributing" fake ration coupons, creating more "demand" for food than there was supply, and causing chaos. Fortunately, they didn't. –  Tom Au Jul 18 '13 at 21:07
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During the French Revolution, European powers (and displaced French aristocrats, known as emigrants ) opposed to the Revolution flooded France with counterfeit 'assignats' - paper currency, in an attempt to undermine the French economy after they had disposed of Louis XVI.

Thomas Carlye: The French Revolution, a History Chapter 2.5.II: (One of several references there.)

Also they (agents of the Kaiser of Austria) have manufactories of False Assignats; and men that circulate in the interior distributing and disbursing the same; one of these we denounce now to Legislative Patriotism: ‘A man Lebrun by name; about thirty years of age, withblonde hair and in quantity; has,’ only for the time being surely, ‘a black-eye, oeil poche; goes in a wiski with a black horse,’(Moniteur, Seance du 2 Novembre 1791 (Hist. Parl. xii. 212).)—always keeping his Gig!

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During the American Civil War, the Union attacked the Confederacy in this fashion. While this was work of a private Union citizen; the work was tacitly permitted by the government.

Considering the technological advantage the North had over the South; they could have done industrialised this strand of economic warfare with great ease. They only refrained from (formally) doing so because it could have set a bad precedent for counterfeiting after the war. Indeed, the original purpose of the Secret Service was to protect against this very risk - what with the lowering cost of printing presses and supplies.

At least 1 - 3% of all Confederate money was fake and it causes a problem for collectors to this day.

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Very good! Strange it didn't come up earlier. –  Lohoris Oct 15 '13 at 7:43
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In Present time pakistan is waging a proxy war with india, which includes destablising indian economy by printing larg sum of fake currency. Just search google with 'Pakistan Face currency Racket'(https://www.google.co.in/search?q=tactics+being+used+by+pakistan&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a&channel=sb&gfe_rd=cr&ei=ijqAU4rNFuXA8gfayoCIDQ#channel=sb&q=pakistan+fake+currency&rls=org.mozilla:en-US:official) and you will be presented with both reputed and not so reputed links. After a massive loss of people and land in 1971 Bangladesh Liberation war, and neculear test of India in sunsequent years, The balance of power shifted in favour of India. Since Pakistan now can not sustain a full fledge war with India any more, Its ISI(intelligence unit) was tasked to create a road map to take revenge. To destablise its arc rival India, pakistan started to use unconventional methods. The first one was to use terririosm. But you need the money to support it and since pakistan was already short on it ISI invented a nobel way to print fake indian currency. It had Three advantages: It makes money by producing and selling counterfeit currency, and in the process, it harms the Indian economy and fund terror group as part of its mad terror and proxy war against India. It may be recalled that a few years back, a First Secretary of the Pakistani Embassy in Kathmandu was sent back to country because of his clear-cut involvement in sending the counterfeit currency to India.() According to intelligence reports, initially the fake Indian currency was printed in only one or two Pakistan government presses. However, as ISI has been able to successfully enlarge its network in Nepal, Bangladesh, Sri Lanka, Dubai (UAE) and even in India itself with the connivance of gangsters like Dawood Ibrahim, the fake Indian currency is now being printed at several government-controlled presses in Karachi, Multan, Quetta, Lahore and Peshawar.

There are unconfirmed allegations that ISI has also been able to print some fake Indian currency in Bangladesh under its direct supervision.

The Pakistan government imports the special paper and ink from UK, Sweden and Switzerland. As the material is much more than its own legitimate requirement, the excess bulk is diverted to ISI, which is regarded more as an international terror and sabotage outfit now than a normal security agency which should be concerned with safeguarding its own country.

So the answer is yes fake currency has been used before(by germany in WW2) and is being used in current period as I have stated above.

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