Excellent article on how counterfeit detector pens work.
The pens detect the starch content in money. Regular paper has starch, currency paper doesn't.
Magician and skeptic James Randi uses an ironing product, spray starch, that makes genuine bills appear counterfeit. Then he returns the starched bills to the bank. Eventually someone will attempt to pass the genuine but starched bill, leading to police, siezed money, etc.
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