Currency and Coins (Retail) 

An important function of the Federal Reserve is ensuring that enough currency and coin is in circulation to meet the public’s demand. When Congress established the Federal Reserve, it recognized that the public’s demand for cash is variable. This demand increases or decreases seasonally and as the level of economic activity changes. For example, in the weeks leading up to a holiday season, depository institutions increase their orders of currency and coin from Reserve Banks to meet their customers’ demand. Following the holiday season, depository institutions ship excess currency and coin back to the Reserve Banks, where it is credited to their accounts.

Each of the twelve Reserve Banks is authorized by the Federal Reserve Act to issue currency, and the Department of Treasury is authorized to issue coin. The Secretary of the Treasury approves currency designs, and the Treasury’s Bureau of Engraving and Printing prints the notes. The Federal Reserve Board places an annual printing order with the bureau of Engraving and Printing.

An important function of the Federal Reserve is ensuring that enough cash is in circulation to meet the public’s demand.

The Federal Reserve Board coordinates shipments of currency to the Reserve Banks around the country. The Reserve Banks, in turn, issue the notes to the public through depository institutions. Federal Reserve notes are obligations of the Reserve Banks. The Reserve Banks secure the currency they issue with legally authorized collateral, most of which is in the form of U.S. Treasury securities held by the Reserve Banks. Coin, unlike currency, is issued by the Treasury, not the Reserve Banks. The Reserve Banks order coin from the Treasury’s Bureau of the Mint and pay the Mint the full face value of coin, rather than the cost to produce it. The Reserve Banks then distribute coin to the public through depository institutions.

Although the issuance of paper money in this country dates back to 1690, the U.S. government did not issue paper currency with the intent that it circulates as money until 1861, when Congress approved the issuance of demand Treasury notes. All currency issued by the U.S. government since then remains legal tender, including silver certificates, which have a blue seal for the Department of the Treasury; United States notes, which have a red seal; and national bank notes, which have a brown seal. Today, nearly all currency in circulation is in the form of Federal Reserve notes, which were first issued in 1914 and have a green Treasury seal. Currency is redesigned periodically to incorporate new anti-counterfeiting features. When currency is redesigned, all previous Federal Reserve notes remain valid.

When currency flows back to the Reserve Banks, each deposit is counted, verified, and authenticated. Notes that are too worn for recirculation (un­fit notes) and those that are suspected of being counterfeit are culled out. Suspect notes are forwarded to the United States Secret Service, and unfit notes are destroyed at the Reserve Banks on behalf of the Treasury. Notes that can be recirculated to the public are held in Reserve Bank vaults, along with new notes, until they are needed to meet demand. Coin that is received by Reserve Banks is verified by weight rather than piece-counted, as currency is.

Today, currency and coin are used primarily for small-dollar transactions and thus account for only a small proportion of the total dollar value of all monetary transactions. During 2003, Reserve Banks delivered to depository institutions about 36.6 billion notes having a value of $633.4 billion and received from depository institutions about 35.7 billion notes having a value of $596.9 billion. Of the total received by Reserve Banks, 7.4 billion notes, with a face value of $101.3 billion, were deemed to be unfit to continue to circulate and were destroyed. The difference between the amount of currency paid to depository institutions and the amount of currency received from circulation equals the change in demand for currency resulting from economic activity. In 2003, the increase in demand was $36.5 billion.

Over the past five decades, the value of currency and coin in circulation has risen dramatically from $31.2 billion in 1955 to $724.2 billion in 2003.

In 1960, larger denominations accounted for 64 percent of the total value of currency in circulation. By the end of 2003, they accounted for 95 percent. Because the U.S. dollar is highly regarded throughout the world as a stable and readily negotiable currency, much of the increased demand for larger denomination notes has arisen outside of the United States. Although the exact value of U.S. currency held outside the country is unknown, Federal Reserve economists estimate that from one-half to two-thirds of all U.S. currency circulates abroad.

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