Currency
The Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues." This statute means that all United States money are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.
United States Notes (characterized by a red seal and serial number) were the first national currency, authorized by the Legal Tender Act of 1862 and began circulating during the Civil War. The Treasury Department issued these notes directly into circulation, and they are obligations of the United States Government. The issuance of United States Notes is subject to limitations established by Congress. . United States Notes were redeemable in gold until 1933, when the United States abandoned the gold standard. Because United States Notes serve no function that is not already adequately served by Federal Reserve Notes, their issuance was discontinued, and none have been placed in to circulation since January 21, 1971.
The Federal Reserve Act of 1913 authorized the production and circulation of Federal Reserve notes. Although the Bureau of Engraving and Printing (BEP) prints these notes, they move into circulation through the Federal Reserve System. They are obligations of both the Federal Reserve System and the United States Government. On Federal Reserve notes, the seals and serial numbers appear in green.
The last of the 90 percent silver quarter-dollar coins was struck in January 1966, the last of the 10-cent coins in February 1966, and the last of the half-dollar coins in April 1966.
In 1793, when the first U.S. coins were produced, the United States Mint linked the sizes of coins to a particular metal standard—the silver dollar. Except for the copper penny, all coins were produced in proportionate metallic content to the dollar, and their sizes were regulated accordingly. The fifty-cent coin contained one-half as much silver as the dollar, the quarter had one-fourth as much, and the dime or ten-cent coin had one-tenth as much. The five-cent coin, or half-dime as it was called then, had only one-twentieth the silver. But it was so small that it was difficult for people to handle. So in 1866, United States Mint officials decided to make it larger by changing its content from silver and copper to a combination of copper and nickel.
The proper term is "one cent piece," but in common usage this coins is often referred to as a penny or cent. Each penny costs .81 of a cent to make, but the United States Mint collects one cent for it. The profit goes to help fund the operation of the United States Mint. There are quite a few denominations of coins that the United States Mint does not produce any longer for general circulation. They are the half-cent coin, the two-cent coin, the three-cent coin, the half-dime coin (although it was replaced by the five-cent coin), a twenty-cent coins, and the various denominations of gold coins. Although the Mint does produce a series of gold bullion coins, these are not intended for circulation.
Some countries, including Panama and Liberia, have elected at times to use the U.S. dollar as their currency. Other countries that issue currency maintain stable exchange rates between their own currency and the U.S. dollar; in the Caribbean, for example, that stability allows tourists and residents to use both dollars and local currency without fear of a sudden change in exchange value. Workers employed outside their home countries are often paid in U.S. dollars, which make their way into local economies directly or via remittances: U.S. soldiers have been paid in dollars since World War II, and many expatriate workers in the oil-producing countries of the Middle East are paid in dollars. The dollar is also the preferred currency for exchange: Travelers heading for points outside of Western Europe often economize on exchange costs by carrying dollars.
Episodes of economic and political turmoil have frequently been the catalyst for major influxes of dollars into a region. Argentina and the former Soviet Union received large inflows of dollars. In Argentina, which experienced chronic high inflation from the 1960s to the early 1990s and brief bouts of hyperinflation in the mid 1970s and late 1980s, U.S. currency is still used as the settlement medium for large-scale transactions such as those involving real estate and cars.3 Argentina has received as much as $40 billion in net shipments of U.S. currency, or well over $1,000 per capita. However, a Federal Reserve and Treasury study of the use of U.S. currency in Argentina suggests that some currency that was initially shipped to Argentina could have subsequently moved to neighboring countries.
In the countries of the former Soviet Union, past and current high inflation, confiscatory currency reforms, and the underdevelopment of the banking system encourage people to hold and use U.S. dollars for everything from retail purchases of imported consumer products to the settlement of debts between and within countries. Cumulative net shipments of U.S. dollars to this part of the world have likely surpassed those to Argentina, with some estimates as high as $60 billion.
Moreover, evidence from Argentina and other countries indicates that long after crisis episodes have passed, many residents continue to hold dollars as an instantly liquid form of insurance against further political or economic upheaval. Finally, in a high-inflation economy, holding dollars as currency and bearing the implicit interest cost can be more convenient than holding other available savings or transactions instruments, even if they earn interest.
The appearance of U.S. banknotes changes greatly in 1929. In an effort to lower manufacturing costs, all Federal Reserve notes were made about 30 percent smaller—measuring 6.14 x 2.61 inches, rather than 7.375 x 3.125 inches. In addition, standardized designs were instituted for each denomination, decreasing the number of designs in circulation and making it easier for the public to distinguish between genuine and counterfeit notes.
On July 14, 1969, the Federal Reserve and the U.S. Department of the Treasury announced that banknotes in denominations of $500, $1,000, $5,000, and $10,000 would be discontinued. Although they were issued until 1969, they were last printed in 1945. Because United States notes no longer served any function not already adequately met by Federal Reserve notes, their issuance was discontinued and, beginning in 1971, no new United States notes were placed into circulation.
On the 233rd anniversary of Thomas Jefferson’s birth, the $2 Federal Reserve note is re-introduced featuring a new vignette: Trumbull's painting, “The Signing of the Declaration of Independence.” The previous vignette featured an image of Monticello. The $2 bill has not been removed from circulation and is still a circulating denomination of United States paper currency. The Federal Reserve System does not, however, request the printing of that denomination as often as the others. The Series 2003 $2 bill was the last printed and bears the names of former Secretary of the Treasury John W. Snow and Treasurer Rosario Marin. As of April 30, 2007 there were $1,549,052,714 worth of $2 bills in circulation worldwide.
The key for successfully circulating the $2 bill is for retailers to use them just like any other denomination in their daily operations. In addition, most commercial banks will readily supply their retail customers with these bills if their customers request them in sufficient volume to justify stocking them in their vaults. However, neither the Department of the Treasury nor the Federal Reserve System can force the distribution or use of any denomination of currency on banks, businesses or individuals.
In the first significant design change since the 1920s, U.S. currency was redesigned to incorporate a series of new counterfeit deterrents. Issuance of the new banknotes begins with the $100 note in 1996, followed by the $50 note in 1997, the $20 note in 1998, and the $10 and $5 notes in 2000.
The new-design $20 note features subtle background colors of green and peach. The $20 note includes an embedded security thread that glows green when illuminated by UV light. When held to light, a portrait watermark of President Jackson is visible from both sides of the note. In addition, the note includes a color-shifting numeral 20 in the lower right corner of the note.
The currency redesigns continued with the $50 note, which features subtle background colors of blue and red. The $50 note includes an embedded security thread that glows yellow when illuminated by UV light. When held to light, a portrait watermark of President Grant is visible from both sides of the note. In addition, the note includes a color-shifting numeral 50 in the lower right corner of the note.
The new-design $10 note features subtle background colors of orange, yellow, and red. The $10 note includes an embedded security thread that glows orange when illuminated by UV light. When held to light, a portrait watermark of Treasury Secretary Alexander Hamilton is visible from both sides of the note. In addition, the note includes a color-shifting numeral 10 in the lower right corner of the note.
The new-design $5 note features subtle background colors of light purple and gray. The $5 note includes an embedded security thread that glows blue when illuminated by UV light. Two watermarks are featured in the $5 note, which are visible from both sides of the note when held to light. A vertical pattern of three numeral 5s is situated to the left of the portrait and a large numeral 5 is located in the blank space to the right of the portrait.
In its first redesign since 1996, the new-design $100 note features additional security features including a 3-D Security Ribbon and color-shifting Bell in the Inkwell. The new-design $100 note also includes a portrait watermark of Benjamin Franklin that is visible from both sides of the note when held to light.
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