From what I know, yes, it is illegal to reproduce any currency in an unaltered form. Regardless of the purpose (ie. for use as a prop in a self-made film), if someone comes across it and reports it, you could be in a whole heap of trouble.
Now, the major film studios do produce "prop money" that almost looks indistinguishable from the real McCoy, however they have special permissions from the appropriate government department(s) to do such. An independent prop/film-maker would not have that luxury.
It's been my experience that most prop money made and sold through independent means (ie. eBay; I have seen some sellers offer just that sort of thing there), although looking very close to the real thing, take measures to have some slight alterations made.
For example, where it would normally say "United States of America" they instead insert "For Motion Picture Use Only". Other text areas altered include "Reserve Note" to "Cinema Reserve Prop Note", and "Legal Tender" to "Not Legal Tender".
In most cases, when prop money is used on-screen the shot/angle of it is far enough off that the viewing audience can't even see these alterations, and by making these changes to the currency used in filming, it saves the maker of said prop a lot of legal backlash.
Not only that, but it helps to deter anyone who may buy these items from trying to pawn it off as real currency, and therefore decreases the frequency of counterfeiting. There's already enough of that going on as it is.
Oh, one other thing... another legal issue is printing double-sided bills. That too is considered illegal, as the authorities see it as a form of counterfeiting (even though your intentions may be nothing but honest), and so frown upon that as well.
Therefore, it's best to print the front and back of each bill separately. For example, in a prop stack of $100 bills, have a printed front on top and a printed back on the bottom, with cut-to-size blanks as filler in between. At a quick glance, one can't tell it's not a stack full of $100 bills. That's the whole idea anyway, isn't it? To give the "illusion" of it being a hefty stack of high-denomination currency, heh.
I have a few pics from an eBay auction I won for just this sort of thing. I'll try to dig them up on my hard drive and post them here to give you a better idea what I'm talking about.
Of course, in your case, as you're planning on making some significant alterations to the currency you'll be making -- changing the colour scheme, different face of the President -- there may be enough changes made to it that there won't be any issues after all. However, I think it's best you know the best practices for this type of prop, just so you can save yourself some unnecessary headaches (and possibly jail time).
Anyway, I hope this helps... B)
