Updated 9/15/2006 3:01 AM ET

By Barbara Hagenbaugh, USA TODAY

WASHINGTON - The government Thursday warned consumers and businesses that it

is illegal to use alternative money known as "Liberty Dollar" coins, which

organizers promote as a competitor to the almighty dollar.

"We don't want consumers to be fooled," U.S. Mint spokeswoman Becky Bailey

says, noting U.S. Attorneys offices across the USA have noticed a marked

increase in inquiries about the coins.

The coins' producers vowed to fight the government's decision.

Evansville, Ind.-based National Organization for the Repeal of the Federal

Reserve Act and the Internal Revenue Code, otherwise known as NORFED, has

been making the Liberty Dollar coins for eight years and claims million

is in circulation. The group says the money, unlike official U.S. cash, has

a hedge against inflation because it is made almost entirely of silver and

is backed by stocks of silver and gold in a vault in Idaho.

The coins are then spent by the group's 2,500 Liberty Associates in stores

run by fellow supporters or are accepted unknowingly by clerks who are

unaware they are not receiving real money.

The Justice Department has determined that use of Liberty Dollars, which

come in varying denominations, "is a crime," according to the Mint, which

issued a rare public warning Thursday.

"The United States Mint is the only entity that can produce coins," Bailey

says.

The Mint notes the coins share some resemblances to real money, such as the

term "Trust in God" instead of "In God We Trust" and use of a torch in the

design. Such similarities may confuse people into thinking the money is

real, the Mint says.

But NORFED says it will challenge the government, arguing it has never

claimed Liberty Dollars were official money and that it has a right to offer

an alternative.

"The designs and verbiage ... are original and are not copies of any U.S.

Mint currency," NORFED Executive Director Michael Johnson said in a

statement.

It's unclear how many people or businesses are unknowingly holding Liberty

Dollars, which cannot be exchanged for real money at banks.

In a case in Buffalo, a man and his son are set to go on trial next month

after they knowingly tried to buy beer at a Buffalo Sabres hockey game with

Liberty Dollars.

The Mint did not say if government officials will seek to prosecute

individuals or NORFED after its warning.

Reed Runk, part-owner of Kendall Funk & Bismark Jewelers in Chambersburg,

Pa., says the store has been accepting Liberty Dollars for about a year and

has sold a few as well. Runk says the store will continue to accept and sell

the coins.

"We just feel that they are something that educates people as to what the

monetary systems are like in the world, that they are a fiat system, that if

people lose faith in them, they will collapse," he says. Besides, "They are

a good-looking coin."