Counterfeiting has probably been around since the cowrie was used as currency, though the technology has improved. Israel has not been spared the plague of money fakers and the reason this might be of interest to you, dear tourist, is that vendors won't take fake money when they spot it. But rather too many will be perfectly happy to pawn off any fake coins they received on you as change.
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The upshot is you get stuck with money you can't use, and no, the bank won't take it off you.
Just last week I was peacefully shopping at the open-air vegetable market, when the mushroom guy a) raised prices from NIS 10 to NIS 12 for two packages of fungi and b) rejected my 10-shekel coin, which I had just been given by another stand in the market. Why did he turn down my coin? It was counterfeit, he explained, and showed me why he thought so.
Truth be told, once he'd pointed it out, the coin did look a little off. It looked very much like a regular, official 10-shekel coin, but its margins weren't perfectly even.
Now, losing 10 shekels to a con is one thing. Losing 200 is another entirely. What can you do about it? Nothing, except spot them when they're being given to you. Be the one to reject the coin or bill.
How can you spot fake coins and bills without a degree in numismatics? The most fundamental test is looking at the thing. Something seems off, even if you can't name it? Ask for a different one.
Regarding 10-shekel coins, the word "Israel" (in very small Hebrew letters) should appear below the symbol of the state. In fake coins, there is a smudge there, not a word. For this you need to be rather sharp of eye, or carry around a magnifying glass.
Also, counterfeit coins tend to be a hair thicker than regular ones (put two together and check their profiles).
This is a rather subtle point, but if the coin bears a stamp that it was minted say in the year 5762 (tashsab) for instance, which was three years ago, and looks brand new, chances are it's dodgy. And last but not least, the ersatz coin's colors may look, well, wrong – too shiny, too golden.
There are also fake bills in circulation, most commonly 50-and-100 shekel notes but also 20s and 200s. One quick test is to hold the bill up to the light. In proper notes, you should see two triangles superimposing on one another, creating a perfectly symmetrical Star of David. In fake notes, the star looks awry.
Next to that star is a watermark showing the same image as the person depicted on the note. Not there, or looks wonky – for instance the duplicate image isn't a watermark, it's, well, an image? The bill is bad.
Kosher banknotes have an embedded metal wire about a third of the way up the bill when you hold it vertically. It can easily be seen when you hold the bill up to the light. In a fake bill, that isn't there.
And if you get stuck with one after all, you can always give it to the neighbor's kid who collects coins. So it won't be a total loss.