Federal Reserve Note

What Is a Federal Reserve Note?

A Federal Reserve note is a term to describe the paper demand liabilities of the Federal Reserve, commonly referred to as "dollar bills," which circulate in the U.S. as legal tender. For practical purposes, the Federal Reserve note is the monetary unit of the U.S. economy.

The term Federal Reserve note is often confused with the U.S. dollar, the official unit of account of the U.S.

Key Takeaways

  • Federal Reserve notes are the paper currency circulating in the United States.
  • These are commonly known simply as dollar bills.
  • The U.S. Treasury prints the Federal Reserve notes, which are backed by the U.S. 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.
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Banknote Definition

Understanding Federal Reserve Notes

Federal Reserve notes were first issued after the creation of the Federal Reserve System (FRS) in 1913. Before 1971, any Federal Reserve note issued was theoretically backed by a legally specified amount of gold held by the U.S. Treasury, though since 1933 private citizens were not allowed to actually redeem them for gold dollars. Because these notes held legal tender status and represented actual dollars (legally specified as a given quantity of gold held by the Treasury), they came to commonly be referred to as "dollar bills" as they circulated through the economy.

However, under President Nixon, the last vestige of the gold standard was officially abandoned, creating a fully fiat currency, where the Federal Reserve notes themselves became the sole circulating legal tender (along with small base-metal coins), redeemable only for other Federal Reserve notes and not for physical dollars.

Federal Reserve notes are not 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, or by fiat.


Today, Federal Reserve notes circulate as money throughout the U.S. and the rest of the world wherever dollar-denominated transactions take place. These notes are still commonly referred to as "dollars," which was previously a legally defined quantity of gold or silver but is now simply the official unit of account for U.S. legal tender, including Federal Reserve notes.

The U.S. 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 issued, they become a liability of the Federal Reserve, which can be redeemed by bearers on demand for different Federal Reserve notes.

Lifespan of Federal Reserve Notes

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: 6.6 years
  • $5: 4.7 years
  • $10: 5.3 years
  • $20: 7.8 years
  • $50: 12.2 years
  • $100: 22.9 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 Founding Father depicted on the note.

$3

During the early 1800s, federal and state-chartered banks issued $3 notes. There are also $2 bills in circulation, but which are far less common than other denominations.

Currency in Circulation

As of 2021, more than $2.10 trillion of U.S. currency was in circulation, with around $2.05 of that being federal reserve notes—the $50 billion balance made up of coins. The $100 bill has the largest quantity of notes in circulation, followed by the $1 and $20 bills.

This can be broken down by note denomination:

$1 $2 $5 $10 $20 $50 $100 $500 to $10,000 Total
Value ($Billions) $13.1 $2.8 $16.1 $22.5 $234.9 $114.2 $1,636.8 $0.3 $2,041
# of Notes (Billions)  13.1 1.4 3.2 2.3 11.7 2.3 16.4 0.0004 50.3

Federal Reserve Note Features

The U.S. Treasury has employed sophisticated tactics to ensure authenticity and prevent the counterfeiting of Federal Reserve notes. The U.S. 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.

Federal Reserve notes also 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.

What Is the Difference Between a Federal Reserve Note and a United States Note?

A U.S. Note was an earlier form of paper money in the U.S. from 1862-1971, which were backed by and redeemable for physical silver or gold. Between 1933 and 1971 both United States Notes and Federal Reserve Notes were considered legal tender.

Is a Federal Reserve Note a Promissory Note?

Technically, yes, a federal reserve note is a promissory note that does not pay any interest. It is defined as such because it states that "this note is legal tender for all debts, public and private," indicating a promise for the government and private citizens to accept and honor the note as legal tender.

Can I Get Money Directly From the Federal Reserve?

No. You can only get money via the banking system, which in turn, receives its money from the Federal Reserve. Individuals cannot, by law, have accounts at the Federal Reserve.

Article Sources

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  1. Federal Reserve History. "Roosevelt's Gold Program." Accessed June 14, 2021.

  2. U.S. Department of State, Office of the Historian. "Nixon and the End of the Bretton Woods System, 1971–1973." Accessed June 14, 2021.

  3. U.S. Federal Reserve. "How Long Is the Lifespan of U.S. Paper Money?" Accessed Dec. 23, 2021.

  4. U.S. Federal Reserve. "Currency and Coin Services" Accessed Dec. 23, 2021.

  5. U.S. Federal Reserve. "Does the Federal Reserve maintain accounts for individuals?" Accessed Dec. 23, 2021.