How does a blue light identify counterfeit currency? My new LED magnifying glass claims its blue light can identify bad money, but does not tell me what to look for. I read about black light, not blue.

It sounds like the blue light may be a UV-light (black light). Many countries have security features in their bills that are UV-reactive. In US currency, what you are looking for with a UV light is the security thread - a thin, colored thread that will light up under the black light and have the denomination of the bill printed in small type along the thread. This can help you identify regular counterfeits (no security thread), as well as bills which have been bleached and reprinted with a higher denomination. Next time you get a bill from your bank, take it home and try running your light over it, and see if anything lights up.