The chip, called Mew, measures just 0.4mm on a side, and stores information such as identification and security code. It includes 128 bits of read-only memory (ROM) and RF wireless circuitry that allows it to transmit over a distance of about 30cm or 12 inches. If inserted in money, a reader unit would be able to instantly detect authentic bills.
Most identity chips are currently several millimeters on a side.
While the chip currently requires a reader unit to work, its size carries big implications for the future of identity technology. For example, future chips could be implanted into all paper money and be connected wirelessly to the Internet, so that authorities would be able to monitor the movement of all cash.
Such chips could also be embedded in other consumer products to track them in the event of theft.
Hitachi says it is considering adding rewritable memory to the device, but for the moment is using ROM to prevent data falsification.
The chip will begin sampling this autumn and Hitachi will begin marketing it next spring. Mew Solutions, the venture formed by Hitachi to promote the chip, expects sales of US$145m (about £98m) by 2005.