Federal Reserve Note

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

Various Federal Reserve Notes
Notes 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.

1 History
2 Value
3 How a federal reserve note enters the money system
4 Nicknames
5 Criticisms
6 Banknotes
- 6.1 The redesigned banknotes

[edit] 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.

Federal Reserve Notes were originally paper receipts for money (gold and silver), but over the years the Federal Reserve has disconnected the paper from the money.

[edit] 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 they are not redeemable in gold, silver or any other form of lawful money (even though U.S.C. 12,411 states "Federal Reserve Notes...shall be redeemed in lawful money on demand"). This has been the case since 1968. The notes have no value for themselves, but for what they will buy. They have no backing other than the "full faith and credit of the U.S. government" (i.e., the government's ability to levy taxes to pay its debts). In another sense, because they are legal tender, Federal Reserve Notes are "backed" by all the goods and services in the economy.

[edit] 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 United States Mint within the Department of the Treasury. Like coins minted by the United States Mint, they are provided to the Federal Reserve at nominal cost.

A commercial bank belonging to the Federal Reserve System can obtain the notes from the Federal Reserve Bank in its district whenever it wishes. It must pay for them in full, dollar for dollar, by drawing down its account with its district Federal Reserve Bank.

[edit] 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)

Many more slang terms refer to money in general (fishes, cabbage, dough, lettuce, smackers, simoleons, clams, big ones, bread, paper, cheese, etc.).

[edit] Criticisms

[edit] 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 British pound, 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

[edit] Differentiation

Critics also note that U.S. bills are often hard to tell apart: they use very similar designs, are printed in the same colors (until the 2003 banknotes), and are the same size. Advocates for the blind have argued that they should be printed in increasing sizes according to value and employ Braille codes to make the currency more usable by the vision-impaired, since the denominations cannot easily be distinguished from one another non-visually. Though some vision-impaired or blind individuals say that they have learned to determine the different denominations by feel, many others rely on currency readers; still others have their bills each folded differently to quickly identify the denomination. For the blind, this initially requires the assistance of a mechanical device or a sighted person.

By contrast, other major currencies, such as the Euro and pound sterling, 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, 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.^{[citation needed]}

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 (though not standard Braille) in the upper right corner to indicate denomination.

[edit] 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's Gold Certificates were no longer redeemable or exchangable 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.

[edit] Banknotes

The current banknotes in circulation
Image	Value	Obverse	Reverse	Nickname
	$1	George Washington	Great Seal of the United States	Dollar bill, Buck, Single
	$2	Thomas Jefferson	Declaration of Independence	Deuce
	$5	Abraham Lincoln	Lincoln Memorial	Fiver, Fin
	$100	Benjamin Franklin	Independence Hall	C-Note (from the Roman numeral C, for 100), T Bill/Ton, Benjamin, Bengy

[edit] The redesigned banknotes

The redesigned 2004 Federal Reserve Banknotes
Image	Value	Main color	Background color	Obverse	Reverse	Nickname
	$ 10	Orange	Red	Alexander Hamilton	Treasury building	Ten-spot, Sawbuck, Hamilton
	$ 20	Green	Blue	Andrew Jackson	White House	Double-sawbuck, Deuce, Dub, Eelskin
	$ 50	Blue	Blue and Red	Ulysses S. Grant	U.S. Capitol	Grant