The Fed and U.S. Currency
How Federal Reserve Notes are created, ordered, issued, and eventually destroyed — the complete lifecycle of the modern American dollar.
Every paper dollar in your wallet is a Federal Reserve Note — the only form of paper currency currently issued in the United States. Understanding how these notes are created, circulated, and destroyed reveals the extraordinary logistics behind everyday money.
Who Actually Prints the Money?
A common misconception is that the Federal Reserve prints money. In fact, Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), an agency of the U.S. Department of the Treasury. The BEP operates two printing facilities: one in Washington, D.C. (established 1862) and one in Fort Worth, Texas (opened 1991). Together they can produce approximately 37 million notes per day across all denominations.
The Federal Reserve System orders currency from the BEP each year based on projected demand. The BEP then manufactures the notes and sells them to the Federal Reserve at cost (approximately 6–14 cents per note, depending on denomination and security features). The Fed then distributes notes to commercial banks on demand.
Source: Bureau of Engraving and Printing: Currency Production
How New Money Enters Circulation
New currency enters circulation not through government spending, but through a banking transaction. When a commercial bank needs physical cash — because its customers are making withdrawals — it orders notes from its regional Federal Reserve Bank. The Fed debits the commercial bank's reserve account (the account the bank holds at the Fed) and ships the physical currency. The bank then makes the cash available to customers.
This process is worth emphasizing: the creation of physical currency is not the same as the "creation of money" that economists discuss when talking about monetary policy. Physical currency (notes and coins) represents only about 10% of the total money supply (M2). The vast majority of money in the U.S. economy exists as electronic entries in bank accounts.
The Lifecycle of a Federal Reserve Note
A typical Federal Reserve Note follows this path:
- Ordered: The Board of Governors approves the Federal Reserve's annual currency order to the BEP.
- Printed: The BEP manufactures notes in large 32-subject sheets, applying security features, serial numbers, and seals.
- Delivered: Finished notes are shipped to Federal Reserve Banks and branches in armored vehicles and aircraft.
- Issued: Federal Reserve Banks distribute notes to commercial banks as needed.
- Circulated: Banks put notes into ATMs, teller drawers, and cash operations. Notes pass from business to business, person to person.
- Returned: Banks periodically deposit excess cash back at the Federal Reserve. The Fed's high-speed counting and sorting machines process hundreds of notes per second.
- Sorted: Machines assess each returned note. Fit notes (clean, not torn) are recirculated. Unfit notes are shredded.
- Destroyed: Unfit notes are shredded on-site at Federal Reserve Banks. The shredded currency is sometimes sold as novelty souvenirs or used in composting programs.
How Long Does a Note Last?
The Federal Reserve estimates average lifespans for each denomination based on how much handling they receive:
- $1 note: approximately 5.8 years
- $5 note: approximately 5.5 years
- $10 note: approximately 4.5 years
- $20 note: approximately 7.9 years
- $50 note: approximately 8.5 years
- $100 note: approximately 22.9 years
Higher denominations last longer because they are used less as transactional currency and more as stores of value. $100 bills are frequently hoarded — estimates suggest a majority of $100 bills in existence are held outside the United States.
Source: Federal Reserve: Lifespan of Currency FAQs
Federal Reserve Notes vs. United States Notes
Federal Reserve Notes are obligations of the Federal Reserve System, not the Treasury. This matters legally: the text on pre-1963 notes read "Will pay to the bearer on demand" — implying redeemability for gold or silver. Modern notes read simply "This note is legal tender for all debts, public and private." Since 1971, Federal Reserve Notes have been fiat currency — their value derives from government decree and public confidence, not convertibility to any commodity.
The last type of currency other than Federal Reserve Notes issued for general circulation was the United States Note (sometimes called a Legal Tender Note), which was discontinued in 1971. Small quantities of $100 United States Notes were printed until then to comply with a legal requirement that at least $346 million in United States Notes remain in circulation (a vestige of the Civil War era). That requirement was later repealed.
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More in The Federal Reserve
The Federal Reserve Act of 1913
The law that created America's central bank — its causes, passage, key provisions, and lasting legacy on the U.S. dollar.
The Structure of the Federal Reserve System
How the Fed is organized — the Board of Governors, 12 regional banks, the FOMC, and how they work together to run U.S. monetary policy.
A History of the Federal Reserve: 1913 to the Present
From its founding during the Progressive Era through the Great Depression, World War II, stagflation, the 2008 crisis, and COVID-19 — the Fed's history in context.