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The Fed, despite the name, is not really associated with the federal government as people think, it is a private corporation composed of twelve federal reserve banking regions with individual member-banks which are also corporations with shareholders. The Chairman of the Federal Reserve does inform Congress periodically about interest rates and whether the price of lending and borrowing money is going to change.
For a long time, banks in various towns printed their own currency which could only be used as a medium of exchange in that town. The currency was worth something only so long as the bank stayed solvent, was not robbed, or experienced a run-on-the-bank when all depositors withdrew their money at the same time.
On August 29, 1862, six employees, two men and four women, started operating in a one-room attic out of the main Treasury Building which is located near the White House. They separated and sealed one and two-dollar notes made by private printing companies which were under contract with the federal government. For fifteen years, bonds, notes, and other valuable paper was engraved and printed in this part of the Treasury.
By 1880, the larger production had outgrown the facility and Congress appropriated $300,000 to build the first location of the Bureau. In 1894 the Bureau of Engraving and Printing expanded operations to postage stamps printing and the Bureau moved to a $3-million location in 1914. Today, with the added annex, the Bureau occupies 27 acres. In 1991 the Bureau opened the Western currency facility in Fort Worth, Texas, the first outside of Washington, D.C.
The vast spread employs 2,500 people, manufacturing 28 million banknotes a day in both facilities.
The Federal Reserve (the Fed) is considered the Bureau’s customer and the nation’s central bank. The Federal Reserve, a private corporation with shareholders not tied to the federal government, gives an annual order of currency printing (new notes and notes to replace old and worn out currency) and the order is divided between the two facilities.
Every 7-10 years the currency is changed in order to deter counterfeiting. Color shifting, security metal threading, microprinting, and watermarks on the cotton/linen paper have been added to various dollar denominations. Three colors are printed simultaneously on both sides of the currency, adding more security. The printing presses can produce 14 colors simultaneously. The Secretary of the Treasury has the final decision-making power as to what changes are made to our currency.
Prior to 1929, the size of the currency was much larger than that in use today. The bureau printed demand notes, U.S. notes, national bank notes, gold certificates, treasury coin notes, silver certificates, Federal Reserve Bank notes. Printers produced sheets of four notes and sent them to the Treasury Department where they were signed, separated, and trimmed by hand before issuance.
U.S. Notes (Greenbacks) were issued in denominations of $1, $2, $5, $10, $20, $50, $100, $500, $1,000, $5,000, and $10,000 and used well into the 20th century (1862-1994). After 1994, they were no longer issued.
Fractional currency (notes with values less than a dollar) was authorized and issued during the Civil War due to a shortage of coins.
Gold certificates were issued 1865-1935 whereby people deposited gold in the Treasury and received gold certificates in exchange. But later the U.S. government moved to own the gold that backed the certificates. Denominations were the same as Greenbacks plus a certificate of $100,000.
Demand notes were only issued 1861-1862 in denominations of $5, $10, and $20. They were authorized by Congress in order to pay for the Civil War. Demand notes were redeemable “on demand” for gold coin at certain Treasury facilities.
Some financial instruments issued by the bureau involved war savings certificate stamps and thrift stamps. The War Savings Certificate stamps were offered during 1918-1921 and it consisted of $5 stamp purchased for $4 at the beginning of the year of issuance; it increased in value each month and reached face value after five years. The stamps could be affixed in a War Savings Certificate pamphlet. The certificate held 20 stamps, totaling $100. If the bearer had one complete certificate, he could exchange it for a $100 Liberty Loan.
The thrift stamps were offered in 1918 to those who could not afford to buy war savings certificate stamps. The 25-cent thrift stamp was popular with elementary schools, community groups, and places of employment; they organized thrift stamp sales. A thrift card held 16 stamps, equaling $4. A complete card booklet could then be exchanged for a War Savings Certificate stamp.
Gold coins were produced by the U.S. mint from 1795 until 1933. The Great Depression and the financial crisis forced the U.S. to end gold circulation. The Gold Reserve Act of 1934 prohibited most private possession of gold. The restriction ended by Executive Order in 1974. The Mint produces today a limited number of gold coins for collectors.
Looking at some foreign currencies that are quite colorful, one can understand how they would be hard to counterfeit with modern printers as it would be impossible to match every color exactly without disturbing the hues of others.
Adding three-dimensional holographic features to currencies does not work well as the holograms cannot survive the multiple-folding and rolling-tight test. The American dollar can survive intact after multiple days of baking in the sun and multiple laundry tests since the paper is made from a combination of cotton and linen. The famous green ink of the “greenback” is produced by the same company. Computers monitor the ink levels and its quality.
The 32-notes per sheet require 72 hours of curing time between the printing with the green and then the black ink. Intaglio printing is achieved with presses that can create ten tons of pressure without cutting the paper, creating the raised surface feel. After each 32-note sheet is examined by computers and by humans against previous ones, the sheet is cut into two 16-notes sheets.
Currency overprinting adds the Treasury seal, the Federal Reserve seal, and serial numbers. The 16-subject sheets are then cut into notes and packaged into bundles of 4,000. One large shrink wrap contains 16,000 notes. Every currency is numerically sequenced and accounted for in terms of date, time, and year, and where it was shipped to.
The bundle is sent to the Federal Reserve vault where the money is “monetized,” it is now real money because the Federal Reserve says so. In terms of intrinsic value, the banknote is only worth the paper, the ink, and the labor that was put into it to design, print, and inspect it.
Our currency is nothing but a medium of exchange, fiat (Latin for “let it be”) money, deemed so by the government. It has no value as a commodity, but it has value only because people have faith that the issuer will stand behind every piece of printed paper and limit their production.
The question is, do they only replace worn out bills? Obviously, the Federal Reserve has the power to “monetize the deficit,” printing money in excess of goods and services produced in a year in the U.S. If they didn’t print more, how else would we have such a huge national budget and national debt in the trillions of dollars, over $23 trillion at the writing of this article? And that does not even include all the unfunded liabilities such as Social Security, Medicare, Medicaid, unfunded pensions, or unfunded debt. https://usdebtclock.org/
To get a more-dimensional idea of how truly unpayable our national debt is, consider this: 233 of $100-notes make one inch for a total of $23,300. If you are 5’ 10” tall, your height represents $1,631,000 in currency.
Look at the Weimar Republic and what happened to their out of control printing of money – runaway hyperinflation which required an entire wheelbarrow of money to buy a loaf of bread - an opening for a two-bit dictator called Adolf Hitler to come to power by promising a good economy and prosperity.
Can we accurately measure the supply of money, coins, paper money, and checkable deposits? Not because we have no idea how much illegal cash circulates in the underground economy. We can measure well what banks hold in deposits and in the vault in their fractional reserves if their books are kept accurately.
Every dollar kept in the bank’s vault has the potential to eventually create several dollars’ worth of bank deposits once loans are paid back in full.
Bankers’ decisions on how much to hold in reserves in the vaults influence the supply of money. But there are banks that do not belong to the Federal Reserve System and do not follow the Fed dictates.
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