About Paper Money

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Small-size Federal Reserve notes

Federal Reserve notes are authorized by the Act of Congress of Dec. 23, 1917. These notes are issued by the Federal Reserve Banks. They initially were authorized in denominations of $5, $10, $20, $50, $100, $500, $1,000, $5,000 and $10,000. However, the printing of Federal Reserve notes in denominations of $500 and higher was discontinued by action of the board of governors of the Federal Reserve System on June 26, 1946. The first $1 Federal Reserve notes were issued in 1963.

Federal Reserve notes are obligations of the United States and originally were secured by the deposit with Federal Reserve agents of an equivalent amount of collateral, consisting of gold certificates or gold certificate credits with the treasurer of the United States; such discounted or purchased paper as is eligible under the terms of the Federal Reserve Act as amended; and direct obligations of the United States.

Until 1968, Federal Reserve Banks were required to maintain a reserve in gold certificates or gold certificate credits equal to at least 25 percent of these notes in actual circulation, including in this reserve the redemption fund (equal to not less than 5 percent of the notes outstanding less the amount of gold certificates held by the Federal Reserve agent as collateral), which was deposited with the treasurer of the United States and any gold certificates or gold certificate credits held as collateral for Federal Reserve notes. This requirement was abolished in 1968.

Federal Reserve notes have always been printed at the Bureau of Engraving and Printing, although it is not required by law. The Federal Reserve Act merely states that the comptroller of the currency, under the direction of the secretary of the Treasury, shall have the plates engraved and the notes printed. The entire expense of engraving and printing the notes is paid by the Federal Reserve Banks, and is credited to the Bureau's revolving fund.

The number to be ordered is determined by the board of governors of the Federal Reserve System, but the comptroller of the currency issues the printing order. As the volume of Federal Reserve currency fluctuates, it is necessary to keep a large stock on hand before issue. This reserve stock is kept in the vaults of the BEP until it is shipped to the several banks.

The storage of these notes is not, strictly speaking, a BEP activity. The law requires that the stock be kept in the Treasury, subtreasury or a Mint until delivered to the banks.

The packages of completed notes are delivered by the Currency Processing Division of the Bureau to the Federal Reserve vault at both facilities and remains under the control of the BEP until shipment is made to Federal Reserve banks.