At the time, there happened to be large amounts of devalued currency printed by the Confederates during the American Civil War and Mexican Money printed during the Mexican Revolution. Both failed governments had issued a lot of money, hoping the volume would help stave off the money's declining values. Of course, they failed and the money was useless until Hollywood bought up caches of both types of cash, and the first Hollywood prop money was created.
Over time, the Confederate and Mexican folding money wore out, and most of it was thrown away or lost. By then, laws governing the reproduction of fake currency had loosened somewhat. Prop-making manufacturers began to print false money.
Much of this early fake money is now available via specialty Hollywood memorabilia stores. The makers of this money often copied Mexican and Confederate designs and used deliberate misspellings like "Steats of Amreica" to be sure the money could not be passed off as real. Many of these designs are interesting and very beautiful to look at. Though the designers were making obvious fake money, they took the time to make it look great.
In more recent history, laws loosened even more and the stacks of prop dollars being printed by manufacturers became even more convincing. There have been several incidents where the Secret Service (which oversees American currency and stings counterfeiters) has stepped in and confiscated Hollywood prop money, and forced companies to discontinue printing it.
In one notable case, bills with a total face value close to $1 Billion was blown up during the filming of "Rush Hour" in Las Vegas. A significant amount of the fake money, which happened to be very convincing, drifted into crowds of people in Las Vegas. Knowingly and unknowingly, people began to use the bills. Large amounts of this money began turning up in the Las Vegas and Los Angeles areas. Many bills were being passed successfully.
As the incident grew more widespread, the Secret Service got involved and the company that produced the bills, Independent Studio Services, Inc., became embroiled in legal trouble. The Secret Service deemed their fake money product too realistic and seized the prop money from ISSI's facilities. Eventually the company had to stop printing fake money altogether.
Today, prop money is still widely available via memorabilia stores, prop suppliers, private collectors and online auctions. But this prop money is almost always obviously fake, with indicators printed on the bills. Also, much of this fake money is smaller than its real counterpart.
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