Exploring and Ranking Factors Affecting Currency Counterfeiting Using Factor Analysis and Regression

1. Introduction

One of the paramount problems and considered to be the world’s fastest growing crime wave is money counterfeiting. Counterfeiting greatly affects economy of any country. Due to advancement in technology the rate has been proportionally increased. Counterfeit money exhibits two different definitions; one is related to Seized money and other is related to Passed money. Seized money is impounded before it enters circulation and passed money is found when it is circulated and therefore shows great losses by the public. Counterfeiting poses tangible as well as intangible impact and affects individual, business organization and thereby nation’s economy. The effect hits both sides, one who receives counterfeited currency and other where it is tendered. Loss of finances and reduction in financial and economic growth comes under the tangible impacts of counterfeited, whereas, intangible impact covers mislaying individual’s confidence as well as goodwill over the government and Nation’s financial organization.

Analyzing the effect of both types of impacts were very difficult because it includes number of factors which must be controlled prior to take any conglomerative action. Most of the past studies were related to developing a technique and proposing a model that predicts the probability of a new entry as genuine or fake currency. Another source of insight proposed was to generate awareness among the people about various security features, so that people have clear understanding and effective legislations can occur in place. Often, brand new genuine banknotes lead to the doubt of forged currency. Every year, RBI publishes annual report under its currency management section which shows the data about total banknote in circulation and counterfeit currency detection. The data for published counterfeit currency were those which were notified to police or any other investigation agency. Hence, there can be a currency which can be skeptically assumed to be fake or actually fake but not notified. Note sorting machines at banks not always furnishes 100% accurate results in detection of currency as genuine or fake. Circulation of more money declines the value of money and also if less clean currency or in other words soiled currency is more in circulation then it will be very hard for banks to authenticate the currency.