US Federal Reserve Note
Federal Reserve Notes, also United States banknotes or U.S. banknotes, are the banknotes used in the United States of America. Denominated in United States dollars, Federal Reserve Notes are printed by the United States Bureau of Engraving and Printing on paper made by Crane & Co. of Dalton, Massachusetts. Federal Reserve Notes are the only type of U.S. banknote currently produced.
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 Treasury securities which have been purchased by the Federal Reserve through its Federal Open Market Committee in a process called debt monetizing. (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.
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 President Andrew Jackson campaigned heavily for its disestablishment. 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. 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.
Large Sized Notes
Series 1914 FRN were the first of two large-size issues. Denominations were $5, $10, $20, $50, and $100 printed first with a red seal and then continued with a blue seal. Series 1914 and 1918 notes in the following two tables are from the National Numismatic Collection at the National Museum of American History (Smithsonian Institution).
Production and Distribution
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 the face value of the notes 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.
Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), a bureau of the Department of the Treasury.
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 for future issues.
Starting with the Series 1996 $100 note, bills $5 and above have a special letter in addition to the prefix letters which range from A-L. For series 1996, the first letter is A, for series 1999, the first letter is B, for series 2001, the first letter is C, for series 2003, the first letter is D, for series 2003A, the first letter is F, for series 2006, the first letter is H, and for series 2006A, the first letter is K.
The Series 2004 $20, the first note in the second redesign, has kept the element of the special double prefix. For series 2004, the first letter is E, for series 2004A, the first letter is G, for series 2006, the first letter is I, for series 2009, the first letter is J, for series 2009A, the first letter is L, and for series 2013, the first letter is M.Federal Reserve Notes are made of 75% cotton and 25% linen fibers.
There are a few regulations to which the U.S. Treasury must adhere when redesigning banknotes. The national motto "In God We Trust" must appear on every banknote.
The portraits appearing on the U.S. currency can feature only deceased individuals, whose names should be included below each of the portraits.
In 2001, the Legal Tender Modernization Act was proposed which would prohibit any redesign of the $1 bill.