How Legal Tender Is Issued in The U.S. Today
Paper money is a form of currency that is physically printed by the Bureau of Engraving and Printing, under authority of the Federal Reserve System. The Bureau of Engraving and Printing is part of the U.S. Treasury Department, whereas the Federal Reserve is not. In contrast to paper money, coins are physically produced by the U.S. Mint, within and under authority of the U.S. Treasury. The Federal Reserve System can authorize as much paper money as it sees fit, but the U.S. Treasury is restricted by law to a certain maximum amount of coinage in circulation.
The Federal Reserve System can increase the money supply by creating money to purchase U.S. Government securities on the open market. Article I, Section 8 of the Constitution explicitly contemplates U.S. Government "securities."
Those "open market operations" involve the buying and selling of U.S. government securities, including federal agency securities and also (as happened, for instance, in response to the recent economic turmoil) mortgage-backed securities. Federal agency securities have been issued by the federal government to finance deficit spending.
The Federal Reserve System can also increase the money supply by allowing banks to issue more loans, which is accomplished by reducing the reserve requirement ratio. This regulation of banks is pursuant to the Commerce Clause. Conversely, the Federal Reserve System can reduce the money supply by selling securities or by increasing the reserve requirement ratio.
Read more about this topic: Legal Tender Cases
Famous quotes containing the words legal, tender, issued and/or today:
“It has come to this, that the friends of liberty, the friends of the slave, have shuddered when they have understood that his fate was left to the legal tribunals of the country to be decided. Free men have no faith that justice will be awarded in such a case.”
—Henry David Thoreau (1817–1862)
“Behold, a silly, tender babe
In freezing winter night,
In homely manger trembling lies:
Alas, a piteous sight.”
—Robert Southwell (1561?–1595)
“We don’t invent our natures. They’re issued to us along with our lungs, our pancreas and everything else.”
—Michael Mann, U.S. screenwriter. Hannibal Lechtor (Brian Cox)
“I became the Incredible Shrinking Mother the year they started junior high. If our relationship today depended on physical clout, I would have about the same influence with them that the republic of Liechtenstein has on world politics.”
—Mary Kay Blakely (20th century)