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)
“The tender skin does not shrink from bayonets, the timid woman is not scared by fagots; the rack is not frightful, nor the rope ignominious. The poor Puritan, Antony Parsons, at the stake, tied straw on his head when the fire approached him, and said, “This is God’s hat.””
—Ralph Waldo Emerson (1803–1882)
“A small voice issued from a bed placed in utter darkness where no ray of light was admitted, complaining of bad nerves, low spirits, and terrible dreams.”
—Sarah Fielding (1710–1768)
“In the mountains of truth you will never climb in vain: either you will already get further up today or you will exercise your strength so that you can climb higher tomorrow.”
—Friedrich Nietzsche (1844–1900)