A Federal Reserve Note is a type of banknote used in the United States of America. Federal Reserve Notes are printed by the United States Bureau of Engraving and Printing on paper made by Crane & Co. of Dalton, Massachusetts. They are the only type of U.S. banknote that is still produced today[1] and they should not be confused with Federal Reserve Bank Notes.
Federal Reserve Notes are authorized by Section 411 of Title 12 of the United States Code and are issued to the Federal Reserve Banks at the discretion of the Board of Governors of the Federal Reserve System.[2] The notes are then put into circulation by the Federal Reserve Banks.[3] Once the notes are put into circulation, they become liabilities of the Federal Reserve Banks[4] and obligations of the United States.[2]
Federal Reserve Notes are legal tender, with the words "this note is legal tender for all debts, public and private" printed on each note. (See generally 31 U.S.C. § 5103.) They have replaced United States Notes, which were once issued by the Treasury Department. Federal Reserve Notes are backed by the assets of the Federal Reserve Banks, which serve as collateral under Federal Reserve Act Section 16. These assets are generally Treasuries which have been purchased by the Federal Reserve through its Federal Open Market Committee in a process called monetizing the debt. (See Monetization.) This monetized debt can increase the money supply, either with the issuance of new Federal Reserve Notes or with the creation of debt money (deposits). This increase in the monetary base leads to larger increase in the money supply through the fractional-reserve banking as deposits are lent and re-deposited where they form the basis of further loans.
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Prior to centralized banking, each commercial bank issued their own notes. The first institution with responsibilities of a central bank in the U.S. was the First Bank of the United States, chartered in 1791 by Alexander Hamilton. Its charter was not renewed in 1811. In 1816, the Second Bank of the United States was chartered; its charter was not renewed in 1836, after it became the object of a major attack by president Andrew Jackson. From 1837 to 1862, in the Free Banking Era there was no formal central bank, and banks issued their own notes again. From 1862 to 1913, a system of national banks was instituted by the 1863 National Banking Act. The first printed notes were Series 1914. In 1928, cost-cutting measures were taken to reduce the note to the size it is today.
The authority of the Federal Reserve Banks to issue notes comes from the Federal Reserve Act of 1913. Legally, they are liabilities of the Federal Reserve Banks and obligations of the United States government. Although not issued by the Treasury Department, Federal Reserve Notes carry the (engraved) signature of the Treasurer of the United States and the United States Secretary of the Treasury.
At the time of the Federal Reserve's creation, the law provided for notes to be redeemed to the Treasury in gold or "lawful money." The latter category was not explicitly defined, but included United States Notes, National Bank Notes, and certain other notes held by banks to meet reserve requirements, such as clearing certificates.[5] The Emergency Banking Act of 1933 removed the gold obligation and authorized the Treasury to satisfy these redemption demands with current notes of equal face value (effectively making change). Under the Bretton Woods system, although citizens could not possess gold, the federal government continued to maintain a stable international gold price. This system ended with the Nixon Shock of 1971. Present-day Federal Reserve Notes are not backed by convertibility to any specific commodity, but only by the legal requirement that they are issued against collateral.
A commercial bank that maintains a reserve account with the Federal Reserve can obtain notes from the Federal Reserve Bank in its district whenever it wishes. The bank must pay for the notes in full, dollar for dollar, by debiting (drawing down) its reserve account. Smaller banks without a reserve account at the Federal Reserve can maintain their reserve accounts at larger "correspondent banks" which themselves maintain reserve accounts with the Federal Reserve.[6]
Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), a bureau of the Department of the Treasury.[7] When Federal Reserve Banks require additional notes for circulation, they must post collateral in the form direct federal obligations, private bank obligations, or assets purchased through open market operations.[8] If the notes are newly printed, they also pay the BEP for the cost of printing (about 4¢ per note). This differs from the issue of coins, which are purchased for their face value.[6]
A Federal Reserve Bank can retire notes that return from circulation by exchanging them for collateral that the bank posted for an earlier issue. Retired notes in good condition are held in the bank's vault by for future issues.[9] Notes in poor condition are destroyed[10] and replacements are ordered from the BEP. The Federal Reserve shreds 7,000 tons of worn out currency each year,[11]
Federal Reserve notes, on average, remain in circulation for the following periods of time:[12]
| Denomination | $1 | $5 | $10 | $20 | $50 | $100 |
| Years in circulation | 4.7 | 3.8 | 3.6 | 7.0 | 11.9 | 21.6 |
The Federal Reserve does not publish an average life span for the $2 bill. This is likely due to its treatment as a collector's item by the general public; it is, therefore, not subjected to normal circulation.[13]
U.S. paper currency has had many nicknames and slang terms. The notes themselves are generally referred to as bills (as in "five-dollar bill") and any combination of U.S. notes as bucks (as in "fifty bucks"), bones, or beans. Notes can be referred to by the first or last name of the person on the portrait (George for One Dollar,[14] "Abe" or Lincoln for the Five Dollar, and so on).
Many more slang terms refer to money in general (moolah, paper, bread, dough, do-re-mi, freight, loot, dinero, cheese, cake, stacks, greenmail, jack, rabbit, cabbage, pie, cheddar, scrilla, scratch, etc.).
Despite the relatively late addition of color and other anti-counterfeiting features to U.S. currency, critics hold that it is still a straightforward matter to counterfeit these bills. They point out that the ability to reproduce color images is well within the capabilities of modern color printers, most of which are affordable to many consumers. These critics suggest that the Federal Reserve should incorporate holographic features, as are used in most other major currencies, such as the pound sterling, Canadian dollar and euro banknotes, which are more difficult and expensive to forge. Another robust technology, the polymer banknote, has been developed for the Australian dollar and adopted for the New Zealand dollar, Romanian leu, Thai baht, Papua New Guinea kina and other circulating, as well as commemorative, banknotes of a number of other countries. Polymer banknotes are a deterrent to the counterfeiter, as they are much more difficult and time consuming to reproduce. They are said to be more secure, cleaner and more durable than paper notes.[15]
However, U.S. currency may not be as vulnerable as it is said to be. Two of the most critical anti-counterfeiting features of U.S. currency are the paper and the ink. The exact composition of the paper is confidential, as is the formula for the ink. The ink and paper combine to create a distinct texture, particularly as the currency is circulated. The paper and the ink alone have no effect on the value of the dollar until post print. These characteristics can be hard to duplicate without the proper equipment and materials. Furthermore, recent redesigns of the $5, $10, $20, and $50 notes have added EURion constellations which can be used by scanning software to recognize banknotes and prohibit scanning them.
The differing sizes of other nations' banknotes are a security feature that eliminates one form of counterfeiting to which U.S. currency is prone: Counterfeiters can simply bleach the ink off a low-denomination note, typically a single dollar, and reprint it as a higher-value note, such as a $100 bill. To counter this, the U.S. government has included in all $5 and higher denominated notes of 1990 series and later a vertical laminate strip imprinted with denominational information, which under ultraviolet light fluoresces a different color for each denomination ($5 note: blue; $10 note: orange; $20 note: green; $50 note: yellow; $100 note: red).[16]
Critics, like the American Council of the Blind, also note that U.S. bills are often hard to tell apart: they use very similar designs, they are printed in the same colors (until the 2003 banknotes, in which a faint secondary color was added), and they are all the same size. The American Council of the Blind has argued[17] that American paper currency design should use increasing sizes according to value and/or raised or indented features to make the currency more usable by the vision-impaired, since the denominations cannot currently be distinguished from one another non-visually. Use of Braille codes on currency is not considered a desirable solution because (1) these markings would only be useful to people who know how to read braille, and (2) one braille symbol can become confused with another if even one bump is rubbed off. Though some blind individuals say that they have no problems keeping track of their currency because they fold their bills in different ways or keep them in different places in their wallets, they nevertheless must rely on sighted people or currency-reading machines to determine the value of each bill before filing it away using the system of their choice. This means that no matter how organized they are, blind Americans still have to trust sighted people or machines each time they receive change for their purchases or each time they receive cash from their customers.
By contrast, other major currencies, such as the pound sterling and euro, feature notes of differing sizes: the size of the note increases with the denomination and different denominations are printed in different, contrasting colors. This is useful not only for the vision-impaired; they nearly eliminate the risk that, for example, someone might fail to notice a high-value note among low-value ones.
Multiple currency sizes were considered for U.S. currency, but makers of vending machines and change machines successfully argued that implementing such a wide range of sizes would greatly increase the cost and complexity of such machines. Similar arguments were unsuccessfully made in Europe prior to the introduction of multiple note sizes.
Alongside the contrasting colors and increasing sizes, many other countries' currencies contain tactile features missing from U.S. banknotes to assist the blind. For example, Canadian banknotes have a series of raised dots (not Braille) in the upper right corner to indicate denomination. Mexican peso banknotes also have raised patterns of dashed lines.
Ruling on a lawsuit filed in 2002 (American Council of the Blind v. Paulson), on November 28, 2006, U.S. District Judge James Robertson ruled that the American bills gave an undue burden to the blind and denied them "meaningful access" to the U.S. currency system. In his ruling, Robertson noted that the United States was the only nation out of 180 issuing paper currency that printed bills that were identical in size and color in all their denominations and that the successful use of such features as varying sizes, raised lettering and tiny perforations used by other nations is evidence that the ordered changes are feasible.[18]
Robertson accepted the plaintiff's argument that current practice violates Section 504 of the Rehabilitation Act. (Ruling as PDF file) The Treasury is appealing the decision. The judge has ordered the Treasury Department to begin working on a redesign within 30 days.[17][19][20][21]
The plaintiff's attorney was quoted as saying "It's just frankly unfair that blind people should have to rely on the good faith of people they have never met in knowing whether they've been given the correct change."
Government attorneys estimated that the cost of such a change ranges from $75 million in equipment upgrades and $9 million annual expenses for punching holes in bills to $178 million in one-time charges and $50 million annual expenses for printing bills of varying sizes.[22]
On May 20, 2008, in a 2-to-1 decision, the United States Court of Appeals for the District of Columbia Circuit upheld the earlier ruling, pointing out that the cost estimates were inflated and that the burdens on blind and visually impaired currency users had not been adequately addressed.[23]
As a result of the court's injunction, the Bureau of Engraving and Printing is planning to implement a raised tactile feature in the next redesign of each note, except the $1 (which it is by law not allowed to redesign[24] [25] ) and the version of the $100 bill already in process. It also plans larger, higher-contrast numerals, more color differences, and distribution of currency readers to assist the visually impaired during the transition period.[26] The Bureau received a comprehensive study on accessibility options in July 2009, and solicited public comments from May to August 2010.[27]
Congressman Ron Paul, Austrian economists, and other libertarians and constitutionalists criticize Federal Reserve Notes because they are a form of fiat currency and are not backed by tangible assets such as gold or silver. Such critics argue that Federal Reserve Notes can lose value easily and point to the currency's inflation rates as proof of this claim.[28]
Critics, including U.S. Congressman Ron Paul,[29] allege that according to the U.S. Constitution, Article I, Section 8, that only the U.S. Congress has the ability
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures; [30]
and, according to section 10, that
No State shall... make any Thing but gold and silver Coin a Tender in Payment of Debts;[30]
and thus Federal Reserve banknotes are not legal tender, as they were not issued by Congress, states have no authority to recognize anything but gold or silver (including federal reserve notes), and the Federal Reserve does not have the authority to print or create money.[31] Though the printing of money is physically done by the Department of the Treasury, that agency is told by the Federal Reserve how much to print. The Federal Reserve also does "regulate the value" of the U.S. Dollar through its various operations, as authorized by Congress.
Others contend that, since Congress passed the Federal Reserve Act, the Federal Reserve is constitutional as it was created by Congress and Congress retains oversight over the Federal Reserve System.[32] Congress retains the ability to delegate some of its legislative powers to other branches of the government or agencies based on the U.S. Supreme Court's interpretation of the nondelegation doctrine.
A small contingent of strict Constitutionalists, such as the 10th Amendment Nullification Movement [33], and the Constitution Party [34] believe that fiat money is unconstitutional because the power to print paper money was stripped from the Constitution and Congress during the Constitutional Convention, that a power stripped from Congress cannot be granted back to Congress by Congress[35][36], or because of the 10th Amendment declaration that powers not delegated by the States to the Federal Government are reserved to the States or the people. Under this argument, a power stripped from Congress is plainly a power not delegated to Congress.
| Series | Denominations | Obligation clause[37] |
|---|---|---|
| 1914 | $5, $10, $20, $50, $100 | This note is receivable by all national and member banks and Federal Reserve Banks and for all taxes, customs and other public dues. It is redeemable in gold on demand at the Treasury Department of the United States in the city of Washington, District of Columbia or in gold or lawful money at any Federal Reserve Bank. |
| 1918 | $500, $1000, $5000, $10 000 |
| Series | DenomÂinations | Obligation clause | Remarks |
|---|---|---|---|
| 1928 | $5, $10, $20, $50, $100, $500, $1000, $5000, $10 000 | Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank | Branch ID in numerals |
| 1934 | This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve Bank | Branch ID in letters; during the Great Depression | |
| 1950 | $5, $10, $20, $50, $100 | Slight design changes: branch logo; placements of signatures, "Series xxxx", and "Washington, D.C.", | |
| 1963, 1969, 1969A,1969B,1969C, 1974 | $1, $5, $10, $20, $50, $100 | This note is legal tender for all debts, public and private | First $1 FRN; "Will pay to the bearer on demand" removed; Seal in Latin replaced by seal in English in 1969[13] |
| 1976 | $2 | First $2 FRN, Bicentennial |
| Series | Denominations | Obligation clause |
|---|---|---|
| 1977, 1977A, 1981, 1981A, 1985, 1988, 1988A | $1, $5 | This note is legal tender for all debts, public and private |
| 1977, 1977A, 1981, 1981A, 1985, 1988A | $10, $20 | |
| 1977, 1981, 1981A, 1985, 1988 | $50, $100 | |
| 1990 | $10, $20, $50, $100 | |
| 1993 | $1, $5, $10, $20, $50, $100 | |
| 1995 | $1, $2, $5, $10, $20 | |
| Large-portrait ($1 and $2 remain small-portrait) | ||
| 1996 | $20, $50, $100 | |
| 1999, 2001 | $1, $5, $10, $20, $50, $100 | |
| 2003 | $1, $2, $5, $10, $100 | |
| 2003A | $1, $2, $5, $100 | |
| 2006 | $5, $100 | |
| Color notes ($1 and $2 remain unchanged) | ||
| 2004 | $20, $50 | |
| 2004A | $10, $20, $50 | |
| 2006 | $1, $5, $10, $20, $50, $100 | |
| 2009 | $1, $5, $10, $20, $100 | |
| Small size notes | ||||||
|---|---|---|---|---|---|---|
| Image | Value | Description | Date of | |||
| Obverse | Reverse | Obverse | Reverse | first series | last series | |
| $1 | George Washington | Great Seal of the United States | 1963 | current (2009) | ||
| $2 | Thomas Jefferson | Trumbull's Declaration of Independence | 1976 | current (2003A) | ||
| $5 | Abraham Lincoln | Lincoln Memorial | 1928 | 1995 | ||
| $10 | Alexander Hamilton | United States Department of the Treasury Building | ||||
| $20 | Andrew Jackson | White House | ||||
| $50 | Ulysses S. Grant | United States Capitol | 1993 | |||
| $100 | Benjamin Franklin | Independence Hall | ||||
| $500 | William McKinley | "Five Hundred Dollars" | 1934 | |||
| $1000 | Grover Cleveland | "One Thousand Dollars" | ||||
| $5000 | James Madison | "Five Thousand Dollars" | ||||
| $10 000 | Salmon P. Chase | "Ten Thousand Dollars" | ||||
| Small size notes | ||||||
|---|---|---|---|---|---|---|
| Image | Value | Description | series | |||
| Obverse | Reverse | Obverse | Reverse | first | last | |
| $5 | As small-size, small-portrait notes | 1999 | 2006 | |||
| $10 | 2003 | |||||
| $20 | 1996 | 2001 | ||||
| $50 | ||||||
| $100 | 2006 A | |||||
Beginning in 2003, the Federal Reserve introduced a new series of bills, featuring images of national symbols of freedom. The new $20 bill was first issued on October 9, 2003; the new $50 on September 28, 2004; the new $10 bill on March 2, 2006; the new $5 on March 13, 2008. Introduction of a new $100 had been repeatedly delayed,[38] but was revealed on April 21, 2010.[39]
| Color series | ||||||||
|---|---|---|---|---|---|---|---|---|
| Images | Value | Background color | Description | Date of | ||||
| Obverse | Reverse | Obverse | Reverse | Watermark | first series | Issue | ||
| $5 | Purple | President Abraham Lincoln; Great Seal of the United States | Lincoln Memorial | Two Watermarks of the Number "5" | 2006 | March 13, 2008 | ||
| $10 | Orange | Secretary Alexander Hamilton; The phrase "We the People" from the United States Constitution and the torch of the Statue of Liberty | United States Department of Treasury Building | Alexander Hamilton | 2004 A | March 2, 2006 | ||
| $20 | Green | President Andrew Jackson; Eagle | White House | Andrew Jackson | 2004 | October 9, 2003 | ||
| $50 | Pink | President Ulysses S. Grant; Flag of the United States | United States Capitol | Ulysses S. Grant | 2004 | September 28, 2004 | ||
| $100 | Teal | Benjamin Franklin; Declaration of Independence | Independence Hall | Benjamin Franklin | 2009 | To be announced | ||
| These images are to scale at 0.7 pixels per millimeter. For table standards, see the banknote specification table. | ||||||||
All small-sized bills measure 6.14 × 2.61 in (156 × 66 mm).
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