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Quiz on
U.S. Currency

The exchange of credit in the form of bank deposits plays the dominant role in the payment system of a modern economy.  But all such credit is simply a promise to deliver the currency of the State on demand.  This TRUE-FALSE quiz of 15 questions will test your knowledge of U.S. currency.

Drag the mouse pointer over the bracket to see the answer.

1.  All US currency is produced by the Mint, a department of the Treasury.  [False]

The US Mint is responsible for the production of coins, not paper money.  The Bureau of Engraving and Printing produces all paper money, averaging about 22 million notes a day with a face value of about $250 million.

2.  All paper money is issued to the public through the banking system.  [True*]

The Fed buys the notes from the Bureau of Engraving and Printing at cost, and sells them at face value to banks.  Banks use their accounts at the Fed to purchase the notes as needed to supply currency to their depositors on demand.

3.  The average cost of producing a note exceeds 5 cents.  [True*]

In FY2008, 8 billion paper currency notes were produced at cost of about 6.5 cents per note.  About 95% of the notes were issued to replace worn notes, the remainder to meet the demand for additional currency.

4.  Federal Reserve notes are issued in various denominations up to $1000.  [False]

Notes are now issued in seven denominations, the largest being the $100 note.  The printing of larger denominations ended in 1945, and their issuance was discontinued in 1969 because they were so little used.

5.  The largest denomination ever printed was the $10,000 note.  [False]

The largest was the $100,000 Gold Certificate, Series 1934, by the Treasurer of the United States to Federal Reserve Banks against an equal amount of gold bullion held by the Treasury.  They were used in transactions between Federal Reserve banks, and were never circulated among the general public.

6.  The average life of a note depends upon its denomination, the larger denominations lasting the longest.  [True*]

The Fed reports the average life of $20 notes as 2 years, $50 notes as 5 years, and $100 notes as 10 years.  The $5 note has the shortest life, averaging about 1.33 years.

7.  Notes were once issued in fractions of a dollar.  [True*]

During the Civil War period, the Bureau of Engraving and Printing produced paper notes in denominations of 3 cents, 5 cents, 10 cents, 25 cents, and 50 cents.  The reason was that people hoarded coins because of their intrinsic value, which created a drastic shortage of circulating coins.

8.  The redemption value of a note fragment is proportional to the size of the portion submitted.  [False]

As a service to the Fed, banks will reimburse the full face value if clearly more than one-half of the original note remains.  Fragments measuring one-half or less are not redeemable.

9.  Notes and coins issued by the Fed are legal tender, meaning they must be accepted when offered in payment.  [False]

There is no Federal statute which mandates that private businesses must accept notes issued by the Fed as a form of payment.  Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise.

10. The Treasury issued all US notes before the Federal Reserve was created in 1913.  [True*]

The Treasury issued paper money convertible on demand into gold or silver coins long before the Federal Reserve was created.  During the Civil War the Treasury issued greenbacks which were a form of inconvertible fiat money.

11. The US Treasury issued its first notes in 1792, the same year the Mint was established.  [False]

The Treasury did not issue notes intended for circulation as currency until 1862.  Notes of earlier vintage are not obligations of the government, and many of them are counterfeit.

12. US coins produced by the Mint are sold at face value to the Fed. [True*]

The Fed purchases circulating coins, from the penny to the dollar, at face value from the Mint.  The Fed in turn sells them on demand to banks at face value.  In 1965 after the silver content was reduced and later eliminated, the cost of producing a coin became a small fraction of its face value.

13. Most of the Mint's revenue comes from seigniorage, which is the difference between the face value of its coins and the cost of making them. [True*]

The Mint also earns revenues through the sale of numismatic products for collectors.  In recent years, the Mint has earned record revenues and profits, returning $665 million to the U.S. Treasury in FY 2004 and $775 million in FY2005.

14. The value of notes in circulation, issued by the Fed, is over one-half trillion dollars.  [True*]

As of December 2008, the total amount outstanding was $812 billion.  Over half of the total is believed to be overseas, mainly in the larger denominations, which are often held as a store of value by those who don't trust their own currency.

15. The Secret Service was created in 1865 to deal with the widespread counterfeiting of paper money.  [True*]

Counterfeiting remains a serious problem.  In 1990, thirty-six percent of the dollar value of known counterfeit currency passed in the U.S. was produced overseas, particularly in Colombia, Italy, Hong Kong, the Philippines and Bangkok. More recently North Korea has become a major source of high quality counterfeit $100 bills.

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