How U.S. and Federal Reserve Notes Differ

federal reserve notes
by: Ben Tseytlin - on Coins & Currency

The United States Treasury is responsible for issuing federal reserve notes, but must receive permission from the member banks of the Federal Reserve. This system started during the 1930s when a law was signed by the president that transformed U.S. bills into fiat currency.

What is Fiat Currency?

The term “fiat currency” means that the American dollar, which at one time was backed by silver and gold, no longer had such backing. Instead it was declared legal tender through the U.S. government. However, it must be emphasized that there is a difference between notes issued by the Federal Reserve and those of the Treasury. Understanding the distinction is essential for currency collectors, and the population at large.

What Are Federal Reserve Notes?

Although Federal Reserve issued notes are legal today, this wasn’t always the case. When John F. Kennedy assumed office, he made a decision to legalize the printing of U.S. notes. These notes were the very first legalized currency the country ever had, first introduced around 1862, but it was phased out by Fed notes. It was the U.S. note that had the backing of gold and silver. By the time Kennedy was assassinated, about four billion U.S. notes were in circulation. These notes were eventually recalled and no longer used as legal tender. They were replaced by the now common Federal Reserve notes, which are the only currency to be accepted by the U.S. government.

US notes also differ from Fed notes due to their red colored seal and the serial number. Fed notes have a green serial number and seal. They were originally authorized with the Legal Tender Act, and were widely circulated during the Civil War. Many Americans do not know the difference between the two as both have issuing authority from distinct statues. The biggest difference is that U.S. notes were gold redeemable until the 1930s when the gold standard ended. Fed notes were authorized through the Federal Reserve Act in 1913, and even though the Bureau of Engraving and Printing were originally responsible for printing them, they are circulated primarily through the Fed system.

What About Treasury Reserve Notes?

Many financial researchers believe that the term “Treasury Reserve Note,” or TRN, was coined to bring stability to the American and international markets in the wake of the subprime mortgage crisis that occurred in 2008. It was similar to the early U.S. notes, in that it would have the backing of hard assets such as silver and gold. Some took this as a sign that it would phase out the Fed notes, but in truth, TRNs were never actually circulated or printed, so it is unlikely that the U.S. government is planning to replace Federal Reserve notes anytime soon.

Be that as it may, U.S. notes and certificates are a hot item among currency collectors. The value of such bills vary based on year, star note and rarity, but can fetch prices which range from hundreds to thousands and even tens of thousands of dollars.