Federal Reserve Note

DEFINITION of 'Federal Reserve Note'

The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand. This term is often confused with Federal Reserve Bank Notes, which were issued and redeemable only by each individual member bank, but phased out in the mid-1930s.

BREAKING DOWN 'Federal Reserve Note'

Prior to 1971, any Federal Reserve Note issued was theoretically backed by an equivalent amount of gold held by the U.S. Treasury. However, under President Nixon, the gold standard was officially abandoned creating a fiat currency. In other words, Federal Reserve Notes were no longer backed by hard assets. Rather, Federal Reserve Notes were now backed solely by the government's declaration that such paper money was legal tender in the United States.

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    Learn who decides to print money in the United States. Many people relate credit creation, which is the Fed's job, with printing ... Read Answer >>
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  3. Why would the Federal Reserve change the reserve ratio?

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  4. What happens if the Federal Reserve lowers the reserve ratio?

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  5. What do banks do to control the bank reserve?

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    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
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