Criminal gangs have dramatically increased their output of counterfeit £1 coins in the past year, pumping millions of fakes into the economy and threatening to undermine public confidence in the money supply.

Sampling by the Royal Mint of coins in circulation across Britain has found that the number in circulation rose by 27 per cent during 2008, raising the amount of sham coinage to £37.5m – or one £1 coin in every 40 – the highest since the coin was introduced in 1983.

In 2002, one in 100 £1 coins was a worthless fake and in 2007 one in 50. Royal Mint officials are considering launching a public information campaign to warn the public how to spot the fakes.

Technically any person handing one over is breaking the law, meaning that millions of people are unwittingly committing a crime every year, but many of the fakes closely reproduce the metallic compound used by the Royal Mint, making them hard to detect by bank counting machines.

The rise in forgeries, revealed in documents obtained by The Independent, prompted a warning from an expert that their prevalence could undermine confidence in the money supply.

"If the public starts losing confidence in coins and notes, you get people refusing to take them," said Robert Matthews, who retired as Chief Assayer of the Royal Mint in 2002. "It could damage a lot of small shopkeepers doing lots of small transactions."

The latest results suggest many people encounter bogus cash weekly, or daily if they handle money in a shop, pub, café or other business.

The Mint checked 15,481 coins supplied by banks and post offices at 31 places across the UK in October and November 2008. On average, the proportion of fake £1 coins since November and December 2007 rose from 2.06 per cent to 2.58 per cent.

There were much higher levels of fakes in Northern Ireland (3.6 per cent) and London and the South-east (2.97 per cent). They were lowest in the North-west. Concerned officials at the Royal Mint have opened talks with the Treasury and the police on the problem. Bank and building society tellers may be given specialist training.

Mint officials are also talking to vending operators about whether they need to tighten their mechanisms so they reject more coins, which could mean more frustration for those trying to buy parking tickets, drinks or cigarettes.

Martin Cragg, Royal Mint head of corporate affairs, said: "A number of measures are being undertaken by the Royal Mint with third parties to combat counterfeiting, including HM Treasury, the banks, vending operators and law-enforcement agencies.

"In particular, we are considering whether it would be appropriate and helpful to issue further publicity material which may assist the public and others to identify counterfeit coins."

Little is known about the counterfeiters – few have been caught in recent years. One theory is that blank coins from Italy and eastern Europe are "headed and tailed" by lower-level criminals in the UK.

Belfast Telegraph