The 28-year-old was arrested on Friday evening.
Earlier that night, the 32-year-old, who was seen with the 28-year-old, had exchanged 165,000 Russian roubles for €1,815 at the same kiosk.
After he left the shop, the owner realised the bills were fake since they had no serial numbers or security features on them and called the police.
When the 28-year-old later went to the same shop to exchange four fake $100 bills, he was arrested on the spot.
Even though this is considered an isolated incident, police urged members of the public to be alert in their dealings and purchases when they are being carried out in foreign currencies, especially involving bills of large monetary value.
In case anyone notices anything suspicious concerning such cases, they are urged to call the police on 1460.
In the meantime, police are looking for the whereabouts of 32-year-old, Dumitru Mariniuc in connection with the same case. Mariniuc, is a Paphos resident.
Police urge members of the public who may possess any information that could help locate him, to call the Paphos CID at 26 806026, 26 806027, or 26 806049 or the nearest police station, or the Citizen Hotline at 1460.