The exchange of credit in the form
of bank deposits
plays the dominant role in the payment system of a modern
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
knowledge of U.S. currency.
Drag the mouse pointer over the
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,
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
cost, and sells them at face value to banks. Banks use their
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
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
issuance was discontinued in 1969 because they were so little used.
5. The largest denomination
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
gold bullion held by the Treasury. They were used in transactions
between Federal Reserve banks, and were never circulated among the
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
life, averaging about 1.33 years.
7. Notes were once issued in
a dollar. [True*]
During the Civil War period, the Bureau of Engraving and
paper notes in denominations of 3 cents, 5 cents, 10 cents, 25 cents,
50 cents. The reason was that people hoarded coins because of
intrinsic value, which created a drastic shortage of circulating coins.
8. The redemption value of a
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.
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
There is no Federal statute which mandates that private
accept notes issued by the Fed as a form of payment. Private
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
War the Treasury issued greenbacks which were a form of inconvertible
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
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
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
of making them. [True*]
The Mint also earns revenues through the sale of
for collectors. In recent years, the Mint has earned record
and profits, returning $665 million to the U.S. Treasury in FY 2004 and
$775 million in FY2005.
14. The value of notes in
by the Fed, is over one-half trillion dollars. [True*]
As of December 2008, the total amount outstanding was
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
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,
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.