Currency and Coin Services
As the nation's central bank, the Federal Reserve issues and processes Federal Reserve notes. The Federal Reserve also distributes coin through depository institutions. The thirty Federal Reserve Bank cash offices provide cash services to approximately 9,200 banks, savings and loans, and credit unions in the United States. The remaining depository institutions obtain currency and coin from correspondent banks rather than directly from the Federal Reserve.
The amount of currency in circulation depends on the public's demand for currency. Domestic demand largely results from the use of currency in transactions and is influenced primarily by prices for goods and services, income levels, and the availability of alternative payment methods. Domestic demand for currency, however, accounts for only part of the total demand. Foreign demand is influenced primarily by the political and economic uncertainties associated with certain foreign currencies. Recent estimates show that between one-half and two-thirds of the value of U.S. currency in circulation is held abroad. Some residents of foreign countries hold dollars as a store of value, while others use it as a medium of exchange.
Federal Reserve notes comprise more than 99 percent of all U.S. currency in circulation; the remainder includes United States notes, national bank notes, and silver certificates, all of which remain legal tender. Each year, the Federal Reserve Board determines the number of new Federal Reserve notes that are needed and submits a print order to the Treasury's Bureau of Engraving and Printing (BEP). The order reflects the Federal Reserve System's estimate of the amount of currency that the public will demand in the upcoming year and unfit currency that is destroyed. The Federal Reserve pays the BEP the cost of printing new currency and arranges and pays the cost of transporting the currency from the BEP facilities in Washington, D.C., and Fort Worth, Texas, to Reserve Bank cash offices.
When a depository institution orders currency from a Reserve Bank, the Reserve Bank prepares and releases the shipment to an armored carrier company that is arranged by the depository institution. When a depository institution deposits currency with a Reserve Bank, the Reserve Bank stores the currency in secure vaults until it is verified, note-by-note, on sophisticated processing equipment. During the piece-verification process, deposited currency is counted, suspect counterfeit notes are identified, and unfit notes are destroyed. The fit currency is packaged and returned to the vault, and is used to fill future currency orders.
The Federal Reserve distributes a large amount of currency to overseas markets through Extended Custodial Inventory (ECI) facilities and other depository institutions. The Federal Reserve established ECIs in 1996 to facilitate the introduction of new-design U.S. currency to the international community, to recirculate fit bank notes in overseas markets, and to strengthen the information on foreign use and counterfeiting of U.S. currency.
The Federal Reserve's role in coin operations is more limited than its role in currency operations. As the issuing authority for coins, the United States Mint determines annual coin production. The Reserve Banks, however, influence the process by providing the Mint with monthly coin orders and a 12-month rolling coin-order forecast. The Mint transports the coin from its production facilities for circulating coin in Philadelphia and Denver to all of the Reserve Banks and the Reserve Banks' coin terminal locations.
The Reserve Banks distribute new and circulated coin to depository institutions to meet the public's demand. While the Reserve Banks store some coin in their vaults, they also contract with coin terminals to store, process, and distribute coin on behalf of the Federal Reserve. Armored carrier companies generally operate the coin terminals; the coin terminals have improved the efficiency of the coin-distribution system.
Federal Reserve Accounting for Currency and Coin
Federal Reserve notes are liabilities on the Federal Reserve's balance sheet. These liabilities are collateralized by the assets of the Federal Reserve Banks.
Coin held by the Reserve Banks is an asset on the Federal Reserve's balance sheet and the Federal Reserve buys coin from the Mint at face value. When a depository institution orders and deposits coin from its Reserve Bank, the institution's account balance is adjusted accordingly.
Further information on FedCash Services.