Federal Reserve Note

"FRN" redirects here. For other uses, see FRN (disambiguation).

Various Federal Reserve Notes - Observe that they are missing serial number imprints

A Federal Reserve Note (FRNs or ferns) is a type of banknote issued by the Federal Reserve System and is the main type of paper currency in the United States.

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 31 U.S.C. § 5103.) They are issued by the Federal Reserve Banks and have replaced United States Notes, which were once issued by the Treasury Department.

The paper that Federal Reserve Notes are printed on is made by the Crane Paper Company 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.

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 property in exchange for the note. Before 1971, the notes were "backed" by gold—i.e., the law provided that holders of Federal Reserve notes could exchange them on demand for a fixed amount of gold (though from 1934–1971 only foreign holders of the notes could exchange the notes on demand). Since 1971, federal reserve notes have not been backed by any specific asset. While U.S.C. 12,411 states that "Federal Reserve Notes . . . shall be redeemed in lawful money on demand" this means only that Federal Reserve banks will exchange the notes on demand for new Federal Reserve notes. 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 economy; they have value because the public accepts them in exchange for valued goods and services. Intrinsically they are worth the value of their ink and paper components.

How a federal reserve note enters the money system

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 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. In contrast, the Fed 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, some of which ("sawbuck" and "double-sawbuck") are now obsolete. The notes themselves are generally referred to as bills (as in "five-dollar bill") and any combination of U.S. notes and coins 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)
• Dead presidents, any amount in any denomination of Federal Reserve Note (from the portrait of a U.S. president on most denominations)
• One hundred dollar bills are sometimes called "Benjamins" (in reference to their portrait of Benjamin Franklin) or C-Notes (the letter "C" stands for the Roman Numeral 100).
• One thousand dollars($1000) can be referenced as "Large", "K", "Grand" or "Stack", and previously as a "G" (short for "grand").

Many more slang terms refer to money in general (fishes, buckaroo, moolah, cheddar, ducats, C.R.E.A.M., cabbage, dough, greenies, lettuce, smackers, simoleons, clams, big ones, bread, paper, cheese, cash, etc.).

Criticisms

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 the 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 much more difficult and expensive to forge. Another robust technology, developed for the Australian dollar and adopted for the New Zealand dollar, Romanian leu, and a few other currencies, produces polymer banknotes.

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. U.S. notes, however, remain less secure than most other notes, and while a bank might be able to detect fine differences in paper and ink technology, counterfeit notes generally receive far less scrutiny at a point of sale.

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 considered making lower-denomination notes slightly smaller than those of higher denomination. Current proposals suggest making the $1 and $5 bills an inch shorter in length and a half-inch shorter in height.

Differentiation

Critics 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. Advocates for 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 blind, 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. For personal stories about this problem, see http://www.ourmoneytoo.org/stories.php. Nor does this help blind or partially sighted tourists.

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 blind; they nearly eliminate the risk that, for example, someone might fail to notice a high-value note among low-value ones, a common problem in the United States. Tourists also frequently encounter difficulties with U.S. money, as they are less familiar with the design cues that distinguish the various denominations.

Although the redesigned banknotes are more varied, they still lack enough contrast (compared to the Euro, for example) to be rapidly differentiated from each other. This slows the process of counting bills or searching for a specific value. Also, the risk of using a wrong value note still exists.

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.

On November 28, 2006, a federal judge ruled that the American bills gave an undue burden to the blind and denied them "meaningful access" to the U.S. currency system. The specific law that was ruled to be violated was the Rehabilitation Act of 1973. The judge has ordered the Treasury Department to begin working on a redesign within 30 days.

Not honoring obligations

Another criticism of Federal Reserve Notes relates to an alleged unilateral suspension of the convertibility of the notes to gold in 1933. Beginning in that year the Federal Reserve Notes were no longer redeemable or exchangeable for gold at $20 per ounce with respect to requests by U.S. Citizens, although foreign holders could continue to redeem the notes at a fixed rate of $35 per ounce. The policy allowing redemptions at the $35 per ounce fixed rate lasted until 1971. Under this theory, not redeeming the notes with gold constitutes a refusal to perform the obligations of a contract.

Banknotes

The current banknotes in circulation
Image	Value	Obverse	Reverse	Nickname
	$1	George Washington	Great Seal of the United States	Dollar bill, Buck, Single, Washington.
	$2	Thomas Jefferson	The drafting committee presenting a draft of the Declaration of Independence to Congress.	Deuce, Double
	$100	Benjamin Franklin	Independence Hall	C-Note (from the Roman numeral C, for 100), T Bill/Ton, Benjamin, Benjy, Texas Dollar, Hundo, Mr. Franklin.

The New Color of Money Series

Beginning in 2003, the Federal Reserve introduced a new series of bills, featuring with 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 6, 2006; the new $5 scheduled in Spring 2008 and the new $100 in later 2008.

The New Color of Money Series Safer. Smarter. More Secure.
Image		Value	Main Color	Description			Date of
Obverse	Reverse			Obverse	Reverse	Watermark	Series Found on the Note	Issue
	File:Five dollar note series 2005 reverse.jpg	$5	Purple	Abraham Lincoln; Great Seal of the United States	Lincoln Memorial	Two Watermarks of the Number "5"	2006	Spring 2008
		$10	Orange	Alexander Hamilton; parts of the United States Constitution and the torch of the Statue of Liberty	United States Department of Treasury Building	As portrait	2004 A	6 March 2006
		$20	Green	Andrew Jackson; Eagle	White House	As portrait	2004	9 October 2003
		$50	Blue	Ulysses S. Grant; Flag of the United States	United States Capitol	As portrait	2004	28 September 2004
		$100		Benjamin Franklin	Independence Hall			Fall 2008
These images are to scale at 0.7 pixel per millimetre. For table standards, see the banknote specification table.

References

This article incorporates text from the website of the US Treasury, which is in the public domain.