Federal Reserve Note
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Federal Reserve Notes (FRNs or ferns) are the banknotes issued by the Federal Reserve System and is the main type of paper currency in the United States.
Federal Reserve Notes are fiat currency, which means that the government is not obligated to give the holder of a note gold, silver, or any specific tangible property in exchange for the note. Before 1971, the notes were "backed" by gold—i.e., the law provided that holders of Federal Reserve notes could exchange them on demand for a fixed amount of gold (though from 1934–1971 only foreign holders of the notes could exchange the notes on demand). Since 1971, federal reserve notes have not been backed by any specific asset. While U.S.C. 12,411 states that "Federal Reserve Notes . . . shall be redeemed in lawful money on demand" this means only that Federal Reserve banks will exchange the notes on demand for new Federal Reserve notes. Thus today the notes are backed only by the "full faith and credit of the U.S. government"—the government's ability to levy taxes to pay its debts. In another sense, because the notes are legal tender, they are "backed" by all the goods and services in the economy; they have value because the public accepts them in exchange for valued goods and services. Intrinsically they are only worth the value of their ink and paper components.
External Links
- http://www.federalreserve.gov/ Official Fed Website
- Softer and more useful in a pinch
