Nazi counterfeiting "destroyed" confidence in the British currency in Europe by the end of World War II, according to newly released MI5 files.
A 1945 report in the National Archives suggests Germany began production of the fake notes five years earlier in a bid to undermine sterling.
Notes began to enter neutral countries by D-Day and the Bank of England issued the first of two recalls.
The Nazis produced counterfeit sterling with a face value of £134m in total.
That was the equivalent of 10% of all sterling in circulation.
The newly released files include a report on currency, written by banker Sir Edward Reid of MI5's section B1B in August 1945.
He said a captured SS Officer revealed that the Germans had started to make fake notes in 1940, planning to scatter them from the air during the invasion of Britain, creating confusion, damaging confidence.
Although the invasion was postponed, the work continued, and the quality of counterfeits improved.
He noted the fraud became so skilful that "it is impossible for anyone other than a specially trained expert to detect the difference between them and genuine notes".
