Pam Kozminski, age 12, of San Diego, California, for her question:
How does new paper money get into circulation?
A hard working dollar bill is retired from its daily duties after a year or so. It is withdrawn from circulation and replaced by a crisp freshly printed bill. There are reasons, naturally, why this two way operation must be performed precisely and under strict regulations.
All U.S. paper money is printed by the Treasury Department at the busy Bureau of Engraving and Printing in Washington, D.C. The cost of printing it is not high but our nationwide economy would go wild if the government made billions of paper bills and just gave them to us to spend s we choose. Every dollar bill must have value and its worth is backed by the government, so the number of bills printed must be limited by the wealth of the country, in gold and money, in lots of other assets and resources. Hence a bill that represents the value of a dollar must be treated with respect. The value behind that piece of paper must be accounted for and protected at all times.
A secret recipe is used t make the sturdy paper for our bills. But as new bills pass from hand to hand they son lose their crispness. The dollar bills live the busiest lives and most of them wear themselves ragged in 12 to 18 months. They are still worth dollars but .the old paper bills must be replaced. The Treasury Department has strict regulations for collecting worn out bills and disposing of them. This department of the Federal Government also ha a smooth operation for transporting their new replacement bills from Washington to banks all over the nation. The crisp new bills are handed out by the bank tellers to the public.
The operation of getting new bills into circulation must be done with strict security measures. It is sensible to keep some of the details secret but the general pattern of procedure should be understood by everyone. It is carried out by a team of organizations. One is the RS, the Federal Reserve System. This is mainly an organization of banks that operate under sound government regulations to protect the nation's economy. Another member of the team is the Treasury Department. It prints a strict quota of United State notes and a much larger quota of Federal Reserve notes. The government itself is involved in both .this department and the FRS.
All national banks are members of the FRS, as are many state banks that meet its qualifications. The system has a national governing body and 12 nationwide divisions. Each division has one special Federal Reserve Bank city and maybe one or two branch cities. The Treasury Department has its own well guarded routes for getting the new bills from Washington to the FRS divisional headquarters. From there, they are sent to the many FRS member banks in the division and also to non member banks. The new bills then can be counted out to the public for circulation. Naturally, these new bills are merely replacements for worn out bills that the banks have collected and sent in for disposal.
Our busy paper money is often in a bank being deposited or withdrawn. Tellers watch for worn bills and set them aside. They are counted, packaged and sent to Federal Reserve Banks. The FRS sorts them and burns the old United States notes. It sends its own Federal Reserve notes to be burned by the Treasury Department. And every step of this operation also is performed under strict security regulations.