WASHINGTON–They jam parking meters, are spit out by pop machines and tossed back by insulted news vendors.

But at least the inglorious history of the sadsack Canadian coin south of the border no longer includes espionage allegations, now that the great "poppy quarter" spy caper has been unmasked as poppycock.

It turns out that the strange coin found in the cup holder of the Canadian car a U.S. defence contractor rented was, well, a quarter – with a red poppy inlay and a minting date of 2004.

Six of them would have bought him a large double-double at Tim Hortons, which distributed the special coins, and he would have been handed back something strange called a nickel.

Instead, the ominous-looking coin gave rise to an even stranger spy tale in this country – with the U.S. Defense Security Service warning that mysterious coins with radio transmitters appeared to have been planted on American army contractors as they travelled through Canada during 2005 and 2006.

Turns out the American officials were befuddled by protective coatings on the coin, which had been put in place to try to keep the red colour from smudging, something that marred the early 2004 printings of the coin, leaving on some a red blotch on the face of the Queen on the reverse side.

One contractor marvelled that the coin didn't seem to have a power source, but was filled with some sort of "nano-technology."

Another wondered how those things got into his pockets after he had put his loose change in a secure plastic bag.

"And you wonder why our war effort isn't going too well," said John Pike, a security and military analyst at GlobalSecurity.org.

The Canadian embassy tried to remain diplomatic.

"We knew loose lips sink ships, but loose change ... ?" said spokesperson Bernard Etzinger.

The mystery of the Canadian coins with the radio transmitters had haunted cyberspace for four months until it was resolved by the Associated Press yesterday.

The entire story appeared absurd, but the longer it lingered, the more it rankled, Canadian officials admit, and some observers are now wondering whether the original tale had now entered the pantheon of urban legend and will forever stick.

The fear is that it could be the next urban myth that Canadians must deal with down here, joining a list headed by the persistent tale of the 9/11 hijackers coming across the northern border.

"There will be a certain element which will never believe this story because they will believe the media is part of the conspiracy for covering this up," said James Lewis of the Center for Strategic and International Studies in Washington, a rare American who actually owns a Canadian poppy quarter.

"And now I guess I'm part of the conspiracy. And all I got out of it was something worth 22 cents American. I can't even buy a Coke with this"

Documents obtained by AP showed the Canadian worries that the spy coin would enter the world of assumed fact.

The story making the rounds was that rivals of America – maybe Russia, China? – had counterfeited the coins and planted them on the U.S. contractors.

"That story about Canadians planting coins in the pockets of defence contractors will not go away," Luc Portelance, now deputy director for the Canadian Security Intelligence Service, wrote in a January email to a subordinate.

"Could someone tell me more? Where do we stand and what's the story on this?"

Others in Canada's spy service also were searching for answers.

"We would be very interested in any more detail you may have on the validity of the comment related to the use of Canadian coins in this manner," another intelligence official wrote in an email. "If it is accurate, are they talking industrial or state espionage? If the latter, who?"

The identity of the email's recipient was censored in the documents obtained by AP.

Patrick Basham of the Washington-based The Democracy Institute says the original story could stick with the right-wing in America, which is convinced Canada is soft on terrorism. Stories of foreign enemies counterfeiting Canadian coins and using them to spy on Americans play perfectly to that constituency, he says.

"Two, three, four years from now I can see the (ambassador) Michael Wilson of the day earnestly explaining to some congressman that those coins were not really a security threat."

The Defense Security Service backed off its warning after it was publicized and a spokesperson said the information was never properly vetted.

"While these coins aroused suspicion, there ultimately was nothing there," said spokesperson Cindy McGovern.

The CIA has acknowledged using coins to transport bugging devices or film in the past, but no one could quite figure out the logic of planting them on adversaries.

"They have been used to hide a secret document or in co-operative tracking," said Jeff Richelson, an intelligence expert and author who has written extensively on U.S. espionage. "But coins are meant to be put in circulation. People don't keep them very long."

Steven Aftergood of the Federation of American Scientists, which tries to ferret out government secrecy, said the coin spy caper shows the type of military paranoia that can lead to overreaction.

"You just have to laugh because this case is an example of the excess of zeal in the intelligence community which has not been critically examined."

As Pike says, when spooks talk to other spooks, they rarely step back and ask simple questions that might be posed in the real world.