1934 $10,000 FRN, depicting Salmon P. Chase.

Federal Reserve Notes, also United States banknotes or U.S. banknotes, are the banknotes currently 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.[1] Federal Reserve Notes are authorized by Section 16 of the Federal Reserve Act of 1913[2] 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] at which point 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.[5] 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 Section 16.[6] 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. 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 a larger increase in the money supply through fractional-reserve banking as deposits are lent and re-deposited where they form the basis of further loans.

History

Privately issued note, 1853

Prior to centralized banking, each commercial bank issued its 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.

Value

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.[7] 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 legally possess gold (except as rare coins, jewelry, for industrial purposes and the like), 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 collateral assets that Federal Reserve Banks post in order to obtain them.[8]

Large-size 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.[9] Series 1918 notes were issued in $500, $1,000, $5,000, and $10,000 denominations. The latter two denominations exist only in institutional collections.[10] 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).

Large size notes represent the earlier types or series of U.S. banknotes. Their "average" dimension is ​7 38 × ​3 18 inches (187 × 79 mm). Small size notes (described as such due to their size relative to the earlier large size notes) are an "average" ​6 18 × ​2 58 inches (156 × 67 mm), the size of modern U.S. currency. "Each measurement is ± 0.08 inches (2 mm) to account for margins and cutting"

Series 1914

Denomination type set of 1914 Federal Reserve Notes
Value Fr. Red Seal Blue Seal Portrait and engraving
5$5 832a
848
US-$5-FRN-1914-Fr-832a.jpg US-$5-FRN-1914-Fr-848.jpg Abraham Lincoln
10$10 894b
919a
US-$10-FRN-1914-Fr-894b.jpg US-$10-FRN-1914-Fr-919a.jpg Andrew Jackson
20$20 958a
1010
US-$20-FRN-1914-Fr-958a.jpg US-$20-FRN-1914-Fr-1010.jpg Grover Cleveland
50$50 1019a
1053
US-$50-FRN-1914-Fr-1019a.jpg US-$50-FRN-1914-Fr-1053.jpg Ulysses S. Grant
100$100 1074a
1131
US-$100-FRN-1914-Fr-1074a.jpg US-$100-FRN-1914-Fr-1131.jpg Benjamin Franklin

Series 1918

Denomination type set of 1918 Federal Reserve Notes
Value Fr. Image Portrait and engraving
500$500 1132d US-$500-FRN-1918-Fr-1132d.jpg John Marshall
1000$1,000 1133d US-$1000-FRN-1918-Fr-1133d.jpg Alexander Hamilton
5000$5,000 1134d US-$5000-FRN-1918-Fr-1134d.jpg James Madison
10000$10,000 1135d US-$10000-FRN-1918-Fr-1135d.jpg Salmon P. Chase

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.[11]

Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), a bureau of the Department of the Treasury.[12] When Federal Reserve Banks require additional notes for circulation, they must post collateral in the form of 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.[11]

A Federal Reserve Bank can retire notes that return from circulation, which entitles it to recover collateral that it posted for an earlier issue. Retired notes in good condition are held in the bank's vault for future issues.[13] Notes in poor condition are destroyed[14] and replacements are ordered from the BEP. The Federal Reserve shreds 7,000 tons of worn out currency each year.[15]

As of 2013, Federal Reserve notes remain, on average, in circulation for the following periods of time:[16]

Denomination $1 $2 $5 $10 $20 $50 $100
Years in circulation 5.8 no data 5.5 4.5 7.9 8.5 15.0

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.[17]

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. The first letter is A for series 1996; the first letter is B for series 1999; the first letter is C for series 2001; the first letter is D for series 2003; the first letter is F for series 2003A; the first letter is H for series 2006; and the first letter is K for series 2006A.[18]

The Series 2004 $20, the first note in the second redesign, has kept the element of the special double prefix. The first letter is E for series 2004; the first letter is G for series 2004A; the first letter is I for series 2006; the first letter is J for series 2009; the first letter is L for series 2009A; and the first letter is M for series 2013.[18]

Federal Reserve Notes are made of 75% cotton and 25% linen fibers.[19]

Nicknames

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"), or, much less commonly, bones or beans. Notes can be referred to by the first or last name of the person on the portrait (George for One Dollar,[20] or even more popularly, "Benjamins" for $100 notes).

See tables below for nicknames for individual denomination
  • Greenbacks, any amount in any denomination of Federal Reserve Note (from the green ink used on the back). The Demand Notes issued in 1861 had green-inked backs, and the Federal Reserve Note of 1914 copied this pattern.
  • "dead presidents", any amount in any denomination of Federal Reserve Note (from the portrait of a U.S. president on most denominations).
  • Toms for the picture of Thomas Jefferson on the two-dollar bill.
  • fin, finif (from the Yiddish word for five), or finski is a slang term for a five-dollar bill.
  • sawbuck is a slang term for a ten-dollar bill, from the image of the Roman numeral X and its resemblance to the carpentry implement.
  • double sawbuck is slang term for a twenty-dollar bill, from the image of the Roman numeral XX, and in some cases can be used to denote a pair of ten-dollar bills, which would be double sawbucks, depending on the situation and type and amount of currency on hand.
  • One hundred dollar bills are sometimes called "Benjamins" (in reference to their portrait of Benjamin Franklin) or C-Notes (the letter "C" is the Roman numeral 100).
  • One thousand dollars ($1000) can be referenced as "Large", "K" (short for "kilo"), "Grand" or "Stack", and as a "G" (short for "grand").
  • In Raymond Chandler's novel, The Long Goodbye, the protagonist Marlowe refers to a five thousand dollar bill as "a portrait of Madison", due to the president portrayed on the bill being James Madison.
  • Fed Shreds is the nickname for paper money that the United States government finds unfit for circulation and consequently shreds.[21]

Many more slang terms refer to money in general (green stamps, moolah, paper, bread, dough, do-re-mi, freight, loot, cheese, cake, stacks, greenmail, jack, rabbit, cabbage, pie, cheddar, scrilla, scratch, etc.).[citation needed]

Criticisms