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The E-Sylum:  Volume 9, Number 45, November 5, 2006, Article 18

WHERE A DOLLAR ISN'T WORTH A DOLLAR AND OLDER U.S. NOTES BUY LESS

A front-page article in the November 1st Wall Street Journal discusses
a situation little known in the U.S. and Europe.  In many other parts
of the world, older U.S. notes can be passed only at a discount, with
only the newest notes worth face value and issues printed just a few
years earlier worth much less.

"Americans are accustomed to the idea that the dollar -- the world's
No. 1 reserve currency -- is good anywhere. After all, it's a point
of principle that the U.S. never invalidates its notes. The government
may add watermarks, insert security threads or enlarge Ben Franklin's
face on the $100 dollar bill, but old bills are still legal tender.

Overseas, however, that guarantee carries less weight. In many
countries, from Russia to Singapore, the dollar's value depends ...
also on the age, condition and denomination of the bills themselves.
Some money changers and banks worry that big U.S. notes are counterfeit.
Some can't be bothered to deal with small bills. Some don't want to
take the risk that they won't be able to pass old or damaged bills
onto the next person."

"The good bills are new ones that bear Treasury Secretary John W.
Snow's signature. The bad ones are signed by Treasury Secretary
Robert E. Rubin."

"Robert Rubin, now chairman of the executive committee at Citigroup
Inc., doesn't take it personally that his bills sell at a discount.
"If people are paying 85 cents on the dollar, I'll pay them a lot
more than that -- and I'll make the difference," the former Wall
Street trader said."

[Current Treasury Secretary Treasury Secretary Henry M. Paulson's
signature will appear on the new Series 2006 notes, pushing Snow
and Rubin further down the value chain, and making more opportunities
for arbitrage.  So here's a new way to pay for an overseas vacation -
take a pile of new bills and buy up old ones at a discount.  If you're
lucky enough to not get stuck with a counterfeit, there's money to
be made. Of course, you might also have to deal with currency
reporting requirements.  -Editor]

To read the complete article (subscription required), see: Full Story

  Wayne Homren, Editor

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