Federal Reserve Note



A Federal Reserve Note (FRNs or ferns, commonly referred to as U.S. paper money, or bills, and not to be confused with "Federal Reserve Bank Note") is a type of banknote issued by the Federal Reserve System and is the only type of U.S. banknote that is still produced today.

Federal Reserve Notes are fiat currency, with the words "this note is legal tender for all debts, public and private" printed on each bill. (See generally .) They are issued by the Federal Reserve Banks and have replaced United States Notes, which were once issued by the Treasury Department.

The paper on which the Federal Reserve Notes are printed is made by Crane & Co. of Dalton, Massachusetts.

History
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. From 1862 to 1913, a system of national banks was instituted by the 1863 National Banking Act. A series of bank panics, in 1873, 1893, and 1907 provided strong demand for the creation of a centralized banking system. The first printed notes were Series 1914.

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.

Federal Reserve Notes are fiat currency, which means that the government is not obligated to give the holder of a note gold, silver, or any specific tangible commodity in exchange for the note. Before 1964, some notes were "backed" by silver and before 1933, by gold: that is, the law provided that holders of Federal Reserve notes could exchange them on demand for a fixed amount of metal (although from 1934–1971, only foreign holders of the notes could exchange the notes for gold on demand). Since 1964 (see Silver Certificate), Federal Reserve Notes have not been backed by any single specific asset, but are backed by all assets held in collateral by the Federal Reserve, and by the power of the government to collect assets in taxes. While states that "Federal Reserve Notes. . . shall be redeemed in lawful money on demand" this means U.S. coins. Thus today the notes are backed only by the "full faith and credit of the U.S. government"—the government's ability to levy taxes to pay its debts. In another sense, because the notes are legal tender, they are "backed" by all the goods and services in the U.S. economy; they have value because the public may exchange them for valued goods and services in the U.S. economy.

Production and distribution
Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), a bureau of the Department of the Treasury. The Federal Reserve Banks pay the BEP not only the cost of printing the notes (about 4¢ a note), but to circulate the note as new currency rather than merely replacing worn notes, they must pledge collateral for the face value, primarily in Federal securities.

The Federal Reserve shreds 7,000 tons of worn out currency each year. Federal Reserve notes, on average, remain in circulation for the following periods of time: The Federal Reserve does not publish an average life span for the $2 bill. This is likely due to the fact that it is treated as a collector's item by the general public, and therefore is not subjected to normal circulation.

In contrast, the Federal Reserve pays the United States Mint—another Treasury bureau—face value for coins, as coins are direct obligations of the Treasury.

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.

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").
 * 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)
 * fin or finif (from the Yiddish word for five) 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
 * double sawbuck is slang term for a twenty-dollar bill, from the image of the roman numeral XX
 * 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").
 * The popularity of the Saturday Night Live skit Lazy Sunday has led to $10 notes sometimes being referred to as "Hamiltons".
 * 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.

Many more slang terms refer to money in general (moolah, gwop (George Washington on Paper), paper, cash, bread, loot, dinero, cheese, cake, stacks, greenmail, jack, cabbage, pie, cutter, cheddar etc.).

Security
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. 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.

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.

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).

Differentiation
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), and they are all the same size. The American Council of the Blind have argued 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 are printed in different 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.

Suit by sightless over U.S. banknote design
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.

Ruling on a lawsuit filed in 2002 by the American Council of the Blind, Judge 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.

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.

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.

Fiat currency
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 for proof of this claim.

Constitutionality
Critics, including U.S. Congressman Ron Paul, 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;  and thus Federal Reserve banknotes are not legal tender, as they were not issued by Congress and the Federal Reserve does not have the authority to print or create money.

However, 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. 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.

Post-2004 Redesigned Series
Beginning in 2003, the Federal Reserve introduced a new series of bills, featuring images of the 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 has been repeatedly delayed.

All small-sized bills measure 6.14 ×.