The European Central Bank (ECB) is considering tagging high denomination euro notes with microscopic forgery-proof computer chips to combat a six fold increase in fraud.
The tiny chips -- called radio frequency identification chips -- measure just 4mm squared and could be embedded in the banknotes without being visible to the naked eye.
Industry sources have told the Guardian that the Frankfurt bank has held talks with several chip manufacturers, including Hitachi.
"The ECB is definitely considering this technology for the next euro release," said the source. "The chips are close to being ready for mass production but we don't know yet which manufacturer or indeed which technology they will plump for."
Each chip has a unique identity and cannot be duplicated or altered. Special scanners would be installed in banks and shops to signal whether a banknote was genuine.
The plan -- which would dramatically increase banknote production costs -- is being considered by the bank at a time when forgers are getting better at copying the single currency.
The number of intercepted forgeries increased by a factor of six in the second half of last year, from just 21,965 in the first six months to 145,153. The forgers' favorite is the high value 100 euro note, which accounted for 84% of all intercepted bank notes.
Although the euro has only been in circulation since January 1 2002, ECB officials are said to be worried that its security features will not stand the test of time and forgers will perfect copying techniques within two to three years.
A spokesman from the ECB yesterday refused to comment on the plan but admitted that fraud was on the rise.
"The quality of counterfeiting has been poor so far, but the euro is a new currency and in time quality will get better."
The scale of fraud was still relatively small, he said. There were 8.2 billion euro banknotes in circulation across the 12 eurozone countries at the end of 2002 and the bank had only detected 170,000 forgeries. But, he said, the bank, had to move with the times.
"Central banks will always introduce new series and review everything from security features to design," he said.
Euro banknotes have a watermark, raised print and foil security strip to deter fraud.
According to Sody Kahlon, a senior executive at Hitachi which produces the so-called MU chip (thought to be one of the devices being considered by the ECB), such chips are also being considered for other applications including tagging designer clothes, cosmetics and even high value wines.
"One day we could attach these chips to the legs of insects and track them -- they are that small," Kahlon said.
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