What Is Paper Money Grading?

Various types of U.S. paper currency

Yuji Sakai / DigitalVision / Getty Images

One of the most important aspects in determining the value of your paper money is to evaluate its grade. The grade of a piece of paper currency reflects its overall condition. Before standards for grading paper currency existed in the paper money collecting industry, collectors and dealers use terms such as good, fine, excellent, satisfactory, exquisite, etc. Unfortunately, what one person graded as "good," another person might call "excellent," and third-person might call it "satisfactory." As you can imagine, much confusion existed within the paper money marketplace.

Remember, grading paper money is a subjective process that most paper money collectors and dealers would agree with. However, it is not scientific where you can apply a set of standards to an individual specimen, and everyone will come up with the same results. Additionally, there's an old adage that says, "Ownership adds five points." In other words, if you own it, it must've been a good specimen, so we may think higher of it then the person we are selling it to. This is why a set of grading guidelines were developed.

The History of Paper Money Grading

In 1946 Dr. William H. Sheldon, a collector of early American large cents, penned a manuscript entitled "A Quantitative Scale for Condition." Sheldon devised a grading scale for early American copper coins based on a seventy-point scale. He concentrated on large cents from 1793 to 1814. His formula was based on a coin's value for what they were selling for in the marketplace.

The lowest condition or basal state were coins that were selling for the least amount of money. He would then rank other coins that were selling for more money. He then assimilated this data into better grades. For example, the basal state coin was selling for three dollars, and an EF-40 (Extra Fine) specimen was selling for forty times as much or $120. Therefore, in AU-50 specimen would sell for $150. Unfortunately, he did not take into consideration changes in supply and demand throughout the marketplace, which would drastically affect the value of the coins.

In 1977, William P. Koster proposed a numerical grading for paper money very similar to us Sheldon's composed of the following categories:

  • Fair: 5
  • Good: 10
  • Very Good: 15
  • Fine: 20-30
  • Fine to Very Fine: 35-40
  • Very Fine: 45-55
  • Very Fine to Extremely Fine: 55-60
  • Extremely Fine: 70-80
  • Extremely Fine to About Uncirculated: 85
  • About Uncirculated: 90
  • Uncirculated: 95 to 113

Evolution of the Seventy Point Scale

There are more coin collectors than paper money collectors in the United States. As illustrated above, coin collectors have been wrestling with the grading of coins since the early 1800s. To resolve this, the American Numismatic Association assembled a panel of experts in 1973 to start investigating the standardization of grading coins.

The panel was tasked with determining a set of grading terminology to use and then coming to a consensus on a definition for each grade. They decided to use Sheldon's seventy-point scale created back in 1946. After several years of work and discussion, they published their first edition of standardized coin grading terminology in 1977.

Regardless of the terminology or numerical values associated with the grade, coin collectors agree that quality increases with the numerical grade associated with a particular coin. Therefore, any newcomer to the hobby could easily understand this concept and how it applies to valuing a particular coin.

Many coin collectors also collect paper money. The markets and hobby strategies are very similar between the two. Some of the differences include coins are struck on a coining press, and paper money is printed on a printing machine. In the United States, coins are produced at the United States Mint while paper money is printed at the U.S. Bureau of Engraving and Printing. Therefore, such terms as Mint State would not particularly fit to the grading of paper money. However, similar terms such as uncirculated could be carried over into the grading of paper money.

The process for determining the grade of a paper money specimen is very similar to that of grading a coin. The visual inspection of looking for surface preservation and production quality is key to determining the grade. On a coin, a coin collector will look across the entire surface of a coin looking for evidence of wear by concentrating on the highest points of the design. Evidence of wear will show up on these high points first.

Paper money, on the other hand, is flat and does not have any substantial high points. Therefore, other qualities on the paper money specimen must be looked at, for example, creases and folds. If a piece of paper money has circulated in commercial transactions, there is a good chance that the bill has been creased or folded.

Grading terms used in grading coins such as Brilliant Uncirculated or BU would seem to fit very well in the grading of paper money. However, paper money is not brilliant or shiny. Therefore, the term was changed to Crisp Uncirculated or CU. Conversely, the other standardized terms used in grading coinage do apply very well to grading paper money.

Modern Paper Money Grading

in the early twenty-first century experts at PCGS (Professional Coin Grading Service), Paper Money Guarantee (PMG, a Division of NGC), Dr. Lane Brunner, and a variety of other professionals and experts in the field were consulted. Since grading numbers became popular in the 1990s (Mint State 65 became MS-65, Etc.), it was decided that the seventy-point grading scale used in coin collecting would be adopted for the grading of paper money.

In order to determine where on the seventy-point scale, a particular piece of paper money would fall, the following characteristics of the bill would be looked at:

  • Quality of Impression: Is the impression of the ink on the paper of high quality or low quality? Is the image sharp or blurry? Are there light patches or dark patches throughout the impression? A good-quality impression will have none of these problems.
  • Quality of Paper: Is the note printed on quality paper for the series? Earlier colonial paper money was very uneven and rough. Modern-day bills are printed on high-quality smooth paper or even on polymer plastic.
  • Centering: Is the image centered on the cut piece of paper? Is it tilted to one edge or the other? A quality-centered impression will have an even border all the way around.
  • Edges: Are the edges of the bill crisp and sharp? Or are they tattered and ragged?
  • Pinholes: Are there any tiny pinholes in the bill? In the early days of paper money, tellers would thumbtack high denomination bills to the wall so they wouldn't lose them since there was no slot in their currency drawer.
  • Creases or Folds: Are There any creases or folds on the bill? Most folds will come in the center of the bill, where they are mostly carried in a bifold wallet. However, creases can be very sharp, which starts to destroy the fiber structure of the bill.
  • Color: Is the color of the bill consistent with a bill of that series. Early paper money tended to fade rather quickly. Modern paper money uses high-tech ink that does not fade easily over time.
  • Eye Appeal: This is the overall impression of quality that the specimen has. It is the combination of all the previous characteristics of a particular dollar bill coming together in the eye of a collector or dealer.

Here are the standard paper money grades used today:

  • Gem Choice Uncirculated: UNC-65 through UNC-68
  • Choice Uncirculated: UNC-63
  • Uncirculated: UNC-60
  • About Uncirculated: AU-50, AU-53, AU-55, and AU-58
  • Extremely Fine: EF-40 and EF-45
  • Very Fine: VF-20, VF-25, VF-30, and VF-35
  • Fine: Fine-12 and Fine-15
  • Very Good: VG-8 and VG-10
  • Good: Good-4
  • Lower Grades: Poor-1, Fair-2 and About Good-3 (AG-3)