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About Federal Reserve Bank Notes
Federal Reserve Bank Notes—not to be confused
with Federal Reserve Notes—are no longer issued and are probably the most
obscure type of paper currency. Federal Reserve Bank Notes were authorized by
the Federal Reserve Act of December 23, 1913, and used as a form of emergency
currency in the early twentieth century. While the Federal Reserve
Notes we see every day are the responsibility of the Federal Reserve System as
a whole, Federal Reserve Bank Notes were obligations of the 12 different
Federal Reserve Banks that issued them. The notes were first issued in fiscal
year 1916. One of the primary purposes of the Federal Reserve System,
established in late 1913, was to eliminate the system ofNational Bank Notes and to replace it with a
centrally controlled system of Federal Reserve Notes. However, dispersing
Federal Reserve Notes across the country took time and lawmakers feared that
National Bank Notes might be withdrawn from circulation faster than the new
Federal Reserve Notes could be issued. This could cause sudden drops in the
number of notes in different parts of the country,resulting in regional scarcities of currency. In
such cases, the local Federal Reserve Bank was authorized to step in and issue
its own temporary currency to make up the deficiency. But few National Banks
retired their currency as quickly as lawmakers had feared, and there was little
demand for Federal Reserve Bank Notes.
Federal Reserve Bank Notes were next issued
during World War I when the Treasury withdrew Silver Certificates from
circulation and sold the backing silver to Great Britain in 1918. To make up
the loss in circulation, Federal Reserve Bank Notes were issued as an emergency
replacement. Production of the notes ended in 1922. By that time, the Treasury
had replaced the missing silver, and Silver Certificates were reissued as the
Federal Reserve Bank Notes were retired. A small-sized form of the notes was produced
and issued in early March 1933 when President Franklin D. Roosevelt closed all
the banks for three days to stop a banking panic during the Great Depression.
The Treasury feared that once thebanks reopened there would be a mad dash by
depositors for cash, sucking all the available National Bank Notes and Federal
Reserve Notes out of the economy. To counter this threat, Federal Reserve Banks
were authorized for a limited time to issue as many notes as they saw fit. The
feared run on the banks for currency never materialized, and many of the notes
shipped by the BEP were not issued. The existing stock of Federal Reserve Bank
Notes left over from the 1933-1934 printing, $660 million worth, was issued
during World War II, much of it in December 1942, when the Treasury was
suffering a cash crunch. These notes began to be retired as the end of the war
approached; and, in the summer of 1945, Congress amended the Federal Reserve Act to end the use of
Federal Reserve Bank Notes.
