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A Federal Reserve Note (FRNs or ferns, not to be confused with " Federal Reserve bank note" is type of banknote issued by the Federal Reserve and t he only type of American banknotes that still circulates 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 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 .
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.
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 1971, the notes were "backed" by gold: that is, 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 12 U.S.C. § 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.
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 .
Federal Reserve notes, on average, remain in circulation for the following periods of time:
$1 21 months $5 16 months $10 18 months $20 24 months $50 55 months $100 89 months
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.
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