Due to popular demand the “If you Love Money, Know Money” column is back.
Readers are deciding they want to learn more about money, and I want to provide them with all the information I know.
In my last column, I discussed the history of money, how it acquires value and the origin of the term currency. This week I will describe how money is circulated.
First off, money is made by the Bureau of Engraving and Printing in Washington D.C. and Fort Worth, Texas and then shipped to the U.S. Treasury.
The Treasury then ships the new money to the Federal Reserve banks, which I will describe more next week.
The Federal Reserve banks and branches distribute the new money to individual banks in their region.
The banks then distribute the money to their customers, including businesses and individuals.
The money circulates through the economy and around the world, changing hands many times as people pay in cash and get change back.
Businesses and individuals deposit their cash, including old bills, in their accounts.
The banks go through the money and separate the worn bills from those that can stay in circulation. The worn bills are then shipped back to their federal branch or bank.
This next step usually makes people cringe.
When the Federal Reserve banks get the old money it sends it to the U.S. Treasury.
The money is then shredded and burned into mulch. The coins are sent back to the Mint for melting and recasting.
Now that you know how money is circulated you can better understand the Federal Reserve System, also known as the Fed.
The Fed plays many roles. Overall the Fed is the guardian of the nation’s money.
It is the banker, regulator, controller and watchdog all rolled in one.
It has the responsibility of keeping the economy healthy.
As I mentioned in my previous story, when the economy weakens the dollar weakens, so a healthy economy keeps the dollars’ buying power strong.
The Fed utilizes its many roles to attain economic stability.
It acts as a regulator. It authorizes the buying and selling of government securities to try to balance money in circulation.
The Federal Reserve is also a banker. It maintains bank accounts for the U.S. Treasury and many government and quasi-government agencies.
The Fed deposits and withdraws like you do at your local bank but just at a much larger volume. Over 80 million treasury checks are written annually.
The Fed acts as a lender. If a bank needs to borrow money it can turn to the Federal Reserve.
It is also an auditor. The Fed monitors the business affairs and audits the records of all of the banks in its system.
When the Fed replaces worn bills, explained earlier, it is considered a controller. It controls and authorizes the replacement of money.
The Fed is considered a auardian as well because it oversees more than 10,000 tons of gold that is stored in the U.S. by foreign governments.
The gold is held in a vault at the New York Federal Reserve Bank.
Lastly, it acts as an administrator. It is the national clearing house for checks handling over 15 billion transactions a year.
As you can see the Fed is an important part of our economy. Some argue that it has too much power.
What do you think?