Definition: Federal Reserve Notes are the most prevalent form of U.S. paper currency. These notes are issued by the Federal Reserve System (FED) and are put into circulation by the Federal Reserve Banks. They are recognized as legal tender for all debts, public and private, and are considered liabilities of the Federal Reserve Banks. More importantly, they are also obligations of the U.S. government.
Examples:
- Twenty Dollar Bill: A common Federal Reserve Note that displays the image of Andrew Jackson. It is used frequently in day-to-day transactions.
- One Hundred Dollar Bill: Featuring Benjamin Franklin, this Federal Reserve Note is often held for larger transactions or savings.
- Five Dollar Bill: A smaller denomination Federal Reserve Note that features Abraham Lincoln and is used widely for small purchases.
Frequently Asked Questions (FAQs):
What distinguishes Federal Reserve Notes from other forms of money?
Federal Reserve Notes are different from coins and other non-paper forms of currency because they are the primary legal tender issued by the Federal Reserve System, whereas coins are produced by the U.S. Mint.
How are Federal Reserve Notes put into circulation?
They are distributed to the public primarily through banks. These banks submit requests for additional currency to their local Federal Reserve Bank.
Are Federal Reserve Notes backed by gold or silver?
No, Federal Reserve Notes are fiat currency, meaning they are not backed by physical commodities like gold or silver. Their value is derived from the government decree that established them as legal tender.
Can Federal Reserve Notes be used internationally?
Yes, Federal Reserve Notes, particularly higher denominations like the $100 bill, are widely accepted and exchanged in many countries around the world.
What happens to old or damaged Federal Reserve Notes?
The Federal Reserve Banks collect worn-out notes and replace them with new ones. The old notes are then destroyed to prevent fraud and maintain the quality of currency in circulation.
Related Terms:
- Fiat Currency: Money that has no intrinsic value and is established as legal tender by government regulation.
- Legal Tender: Officially recognized currency that must be accepted if offered in payment of a debt.
- Federal Reserve System: The central bank of the United States, which regulates the U.S. monetary and financial system.
- U.S. Treasury: The federal department that manages national finances, including the issuance of bonds, currency, and finances of government operations.
Online References:
- Federal Reserve Board – Money, Interest Rates, and Monetary Policy
- Treasury Department – Currency and Coins
- Economic Research – St. Louis FED: Currency in Circulation
Suggested Books for Further Studies:
- The Federal Reserve and the Financial Crisis by Ben S. Bernanke
- Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider
- A History of the Federal Reserve, Volume 1: 1913-1951 by Allan H. Meltzer
- The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin
Fundamentals of Federal Reserve Notes: Currency Basics Quiz
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