Big Bad Bills: Fed Stuck With Bad $100s

Dec. 7, 2010 — -- About 1.1 billion new $100 bills that were set to be released next year have been quarantined in Bureau of Engraving and Printing vaults across the country because of a creasing problem.

The new bills -- with advanced anti-counterfeiting features -- cost about 12 cents each to produce. That makes the new $100 bills the most costly U.S. paper currency ever made. If the Federal Reserve had to pay for them, it would have cost about $120 million to produce bills it can't use.

In October, the Federal Reserve identified a problem with printing the new bills, but the magnitude of the problem was unclear.

"The Bureau of Engraving and Printing manufactures Federal Reserve notes and has identified a problem with sporadic creasing of the paper during printing of the new $100 note, which was not apparent during extensive pre-production testing," said the statement at the time, which went mostly unnoticed.

Sources tell ABC News that an initial quality check on a small sample of the new bills by the Bureau of Engraving and Printing determined that "more than half" the new bills were fine and could be distributed. But you don't have to be a Fed economist to realize what that means -- up to 49.9 percent of the bills could be defective.

At this point, the Bureau of Engraving and Printing has yet to determine the cause of the printing errors, according to sources investigating the matter. It could be the paper (supplied by Crane & Co.) or might be the BEP's presses.

Simultaneously, they're trying to determine how they're going to quickly check the quality of all those new bills. A hand inspection isn't feasible as the quantity of bills involved would take decades to go through and a mechanized solution is not yet available.

The Bureau of Engraving and Printing said in a statement that the bureau "is working on a technical solution to resolve the matter. We believe a majority of the notes will be found to be acceptable and issued into circulation. BEP is working closely with the Federal Reserve and the paper manufacturer to solve this problem."

Some interesting facts:

• The Federal Reserve is the US currency's issuing and distributing authority.

• The Fed "orders" printed bills from the Bureau of Engraving and Printing. They only pay for the bills which pass quality inspection and only when they take physical delivery of the bills at the nation's 12 regional Federal Reserve Banks.

• There are currently 6.6 billion $100 bills in circulation globally -- and they are very popular both at home and abroad.

• The average $100 has a relatively long circulation "life" -- lasting between 8 and 10 years.

• The plan for introducing the new $100 would have had Federal Reserve Banks circulating new bills as they took in $100s with the old design and destroying them. It's not an immediate process and would likely have taken probably 8 years).

ABCNews' Matt Jaffe contributed to this report