The Bank of Portugal's Counterfeit Counterfeit Banknotes

In the late 1920s, the central bank of Portugal was the victim of an interesting crime. The Bank of Portugal hired the London firm of Waterlow & Sons to print its banknotes. Waterlow & Sons specialized in printing banknotes and stamps. At this time, Portugal was on a fiat money standard; its currency was irredeemable. A group of criminals, pretending to be the Bank of Portugal, placed an order for a large quantity of banknotes. Since these notes were printed by the official engraver, they were indistinguishable from the other banknotes.

After several years, an amount equal to 1% of Portugal's GDP had been laundered. A bank teller noticed duplicate serial numbers and the crime was discovered. The Bank of Portugal called in all its currency and re-issued it.

The Bank of Portugal sued Waterlow & Sons in a London court for negligence. The court agreed that negligence had occurred. The court had to determine damages. If it were counterfeit stamps, it would be obvious to award damages equal to the face amount of the stamps. With counterfeit fiat banknotes, it was hard for the court to determine damages. At the time, Portugal was experiencing deflation; expert witnesses argued that the counterfeit banknotes improved the lot of Portugal's citizens by decreasing the amount of deflation. The court could not determine if the number of banknotes properly issued by the Bank of Portugal were greater or lower, due to the counterfeiting. Since fiat money is itself counterfeit, what is the penalty for counterfeit counterfeit money?

The court awarded damages far less than the face amount of the counterfeit counterfeit money. The Bank of Poland's request for damages equal to the face amount of the counterfeit bills was ignored.