United States dollar facts for kids

Kids Encyclopedia Facts

The United States dollar (or American dollar) is the official currency (money) of the United States of America. It is also used in some other countries outside the US. It is the standard currency for international markets selling goods such as gold and oil (petrol). When writing, the symbol for the American dollar is the dollar sign ($). Dollars can also be known as USD (standing for 'U.S. dollar').

Denominations and value
Federal Reserve
Meeting the variable demand for cash
Maintaining a cash inventory
Gallery
Images for kids
See also

Denominations and value

Front of a US dollar bill

The American one dollar bill has a picture of George Washington. There are currently paper bills (currency) of 1, 2, 5, 10, 20, 50, and 100 dollars.

All U.S. dollar currency has been the same size, shape and general design since 1928. This is unlike some countries where bank notes with different values have different sizes.

The U.S. also has dollar coins. Some are silver colored and some are gold colored. Vending machines often give dollar coins as change, since it is easier for the machines to give out coins than paper money. Some of the more advanced vending machines give out paper money as change. Paper dollars are much more common than dollar coins.

The US dollar in subdivided into cents, and 100 cents equals 1 US dollar. One cent can be written as either $0.01 or 1¢. The cent or "penny" (not to be confused with the English penny sterling) is the least worth coin used in the U.S.. There are several different coins with different cent values of different materials and sizes. There is the penny (1¢ or $0.01), nickel (5¢ or $0.05), dime (10¢ or $0.10), quarter (25¢ or $0.25), and the much rarer half-dollar (50¢ or $0.50). All coins and paper bills have the faces of famous Americans on the front side.

Federal Reserve

The paper "dollar bill" is actually called a "Federal Reserve Note". Federal Reserve notes are legal tender currency notes. The twelve Federal Reserve Banks issue them into circulation pursuant to the Federal Reserve Act of 1913. A commercial bank belonging to the Federal Reserve System can obtain Federal Reserve notes from the Federal Reserve Bank in its district whenever it wishes by paying for them in full, dollar for dollar, from its account with Federal Reserve Bank.

Federal Reserve Banks get the notes from the U.S. Bureau of Engraving and Printing (BEP). It pays the BEP for the cost of producing the notes.

Congress has specified that a Federal Reserve Bank must hold collateral equal in value to the Federal Reserve notes that the Bank receives. This collateral is chiefly gold certificates and United States securities. This provides backing for the note issue.

Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. This has been the case since 1933. The notes have no value for themselves, but for what they will buy.

The Coinage Act of 1965 titled "Legal tender" states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues".

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is no Federal statute saying a person or organization must accept currency or coins as payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash. But there might be a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.

Meeting the variable demand for cash

The public typically obtains its cash from banks by withdrawing cash from automated teller machines (ATMs) or by cashing checks. The amount of cash that the public holds varies seasonally, by the day of the month, and even by the day of the week. For example, people demand a large amount of cash for shopping and vacations during the year-end holiday season. Also, people typically withdraw cash at ATMs over the weekend, so there is more cash in circulation on Monday than on Friday.

To meet the demands of their customers, banks get cash from Federal Reserve Banks. Most medium- and large-sized banks maintain reserve accounts at one of the 12 regional Federal Reserve Banks, and they pay for the cash they get from the Fed by having those accounts debited. Some smaller banks maintain their required reserves at larger, "correspondent," banks. The smaller banks get cash through the correspondent banks, which charge a fee for the service. The larger banks get currency from the Fed and pass it on to the smaller banks.

When the public's demand for cash declines—after the holiday season, for example—banks find they have more cash than they need and they deposit the excess at the Fed. Because banks pay the Fed for cash by having their reserve accounts debited, the level of reserves in the nation's banking system drops when the public's demand for cash rises; similarly, the level rises again when the public's demand for cash subsides and banks ship cash back to the Fed. The Fed offsets variations in the public's demand for cash that could introduce volatility into credit markets by implementing open market operations.

The popularization of the ATM in recent years has increased the public's demand for currency and, in turn, the amount of currency that banks order from the Fed. Interestingly, the advent of the ATM has led some banks to request used, fit bills, rather than new bills, because the used bills often work better in the ATMs.

Maintaining a cash inventory

Each of the 12 Federal Reserve Banks keeps an inventory of cash on hand to meet the needs of the depository institutions in its District. Extended custodial inventory sites in several continents promote the use of U.S. currency internationally, improve the collection of information on currency flows, and help local banks meet the public's demand for U.S. currency. Additions to that supply come directly from the two divisions of the Treasury Department that produce the cash: the Bureau of Engraving and Printing, which prints currency, and the United States Mint, which makes coins. Most of the inventory consists of deposits by banks that had more cash than they needed to serve their customers and deposited the excess at the Fed to help meet their reserve requirements.

When a Federal Reserve Bank receives a cash deposit from a bank, it checks the individual notes to determine whether they are fit for future circulation. About one-third of the notes that the Fed receives are not fit, and the Fed destroys them. As shown in the table below, the life of a note varies according to its denomination. For example, a $1 bill, which gets the greatest use, remains in circulation an average of 5.9 years; a $100 bill lasts about 15 years.