Shop owners in Holloway, North London, say they have seen a continuous stream of counterfeit notes, which look realistic, but are printed on poor quality paper.
Nash Patel of Nash Newsagents told the Islington Gazette: "We are seeing them everyday now. When you refuse them, the kids argue and abuse you."
Ravi Kandiah of the nearby Costcutter added: "I've seen a guy giving notes to kids outside, then they come to buy something and get the change."
Local police warned retailers to be vigilant.