What Is a Federal Reserve Note?

A Federal Reserve note is a term to describe the paper currency (dollar bills) circulating in the United States. The US Treasury prints the Federal Reserve notes at the instruction of the Board of Governors and the twelve Federal Reserve member banks.

These banks also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand. Once new Federal Reserve notes are added, they become an obligation of the United States.

This term is often confused with Federal Reserve Bank Notes, which were issued and redeemable only by each member bank, but they phased out in the mid-1930s.

Key Takeaways

  • Federal Reserve notes are the paper currency circulating in the United States.
  • The US Treasury prints the Federal Reserve notes, which are backed by the US government.
  • The notes' lifespans differ according to their denomination, with larger notes having longer lifespans.
  • Each note is equipped with security features to prevent counterfeiting and identifiers to provide information about the note.

Understanding Federal Reserve Note

Federal Reserve notes were issued after the creation of the Federal Reserve System in 1913. Before 1971, any Federal Reserve note issued was theoretically backed by an equivalent amount of gold held by the US 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. Instead, Federal Reserve notes are now backed solely by the government's declaration that such paper money was legal tender in the United States.

The lifespan of the different Federal Reserve notes is dependent on its denomination. In general, the larger the denomination, the longer the lifespan because they are used less and people are more vigilant in holding onto them and keeping them well-kept. If you lose a $1 note, you may not blink; on the other hand, losing a $100 bill is a different story. According to the Federal Reserve, the average lifespan of each note is as follows:

  • $1: 5.8 years
  • $5: 5.5 years
  • $10: 4.5 years
  • $20: 7.9 years
  • $50: 8.5 years
  • $100: 15.0 years

Colloquially, the term greenback is used for any denomination of a banknote. Some specific nicknames are Benjamin for a $100 bill and Tom for the $2 bill, both referencing the president depicted on the note. 

$3

During the early 1800s, federal and state-chartered banks issued $3 notes.

Federal Reserve Note Requirements

The U.S. Treasury has employed sophisticated tactics to ensure the authenticity and prevent the counterfeiting of its Federal Reserve notes. The US Treasury enhanced circulating notes with three types of security features: covert features, banknote equipment manufacturer features, and public features. Some public features include various watermarks, security threads, and color-shifting ink. Common to all notes is the inclusion of serial numbers and a Federal Reserve Bank identifier, as well as other features.

Federal Reserve notes have specific identifiers that provide information about them. Each note has an eleven-digit serial number, consisting of letters and numbers (10 digits for $1 and $2 notes). The first digit identifies the series year, which is the year that the Secretary of Treasury approved a new design or the year that a new secretary's signature was used in the design. Serial numbers that end with a capital letter denote that there was a significant change in the note's design. Stars appearing at the end of the serial number, replacing the last digit, signify that it is a replacement note.

For $5, $10, $20, $50, and $100 denomination notes, there is a two or three-digit code (letter-number format) that corresponds to the Federal Reserve Bank that accounts for that note. The first digit in this code corresponds to the second digit in the serial number. For smaller denominations, such as the $1 and $2 bill, a seal identifies the Federal Reserve Bank.