Currency notes and coins are all produced by the Treasury Department. After production, the Treasury ships the coins and currency notes directly to Federal Reserve banks and branches. The Federal Reserve then releases them as required by the commercial banking system. The demand for money by the public varies from day to day and from week to week. There are even differences from season to season. Banks are usually first to feel the impact of the public's demand for cash. To meet the needs of the public, banks turn to their regional Federal Reserve bank for coins and currency when their supplies are low.

The United States Mint is responsible for producing coins and the Bureau of Engraving and Printing (BEP) produces currency notes. Both bureaus must produce coins and currency in quantities sufficient to fill the needs of the public.

Coin Distribution

To assure smooth and sufficient flow of coins, the United States Mint continually revises its techniques for estimating coinage demands. In planning production and scheduling coin shipments, the United States Mint uses long-range

economic indicators and historic seasonal trends such as Christmas to decide how many coins to manufacture. Experience has shown that forecasting coin demand cannot be done with absolute accuracy. This means that estimates must also include an amount sufficient to provide an inventory that would absorb any deviation that might occur. Armored carriers usually transport ten-cent coins, quarter-dollar coins and half-dollar coins, while tractor-trailer trucks transport one-cent coins and five-cent coins.

Federal Reserve banks arrange in advance to received new coin shipments for the coming year. They do this in amounts and on a time schedule to maintain their inventories at the required levels. Under this arrangement, the United States Mint can schedule its production schedule efficiently. Even with advance planning, there are occasions when coin shortages arise. The Federal Reserve banks must follow the advance shipping schedules. Except in an emergency, there are no provisions for obtaining additional coins.

Federal Reserve banks receive coins at face value because they are obligations of the United States Government. The Banks store the coins until they need to fill orders from the commercial banks in their district. The Federal Reserve banks fill these orders from their vault stocks of both new and circulated coins. Also, they fill the orders without regard to date or mint mark. Coin shipments leave the Federal Reserve banks by armored car, registered mail, or express.

If a commercial bank has excess coins on hand, they may return the coins to the Federal Reserve bank. It then sorts the coins for fitness. They return badly worn or bent coins to the United States Mint, which melts them down and makes them into new coins. Also, the banks remove foreign and counterfeit coins from circulation. According to Federal Reserve sources, over 20 billion coins valued at well over $2 billion pass through their coin processing units each year.

Currency Distribution

Every summer, the currency departments at each of the 12 Federal Reserve banks make recommendations about future currency needs. The banks then place orders with the Comptroller of the Currency. After reviewing the requests, the Comptroller forwards them to the Bureau of Engraving and Printing. It then produces the appropriate denominations of currency notes bearing the seal of the Federal Reserve bank placing the order. The Federal Reserve bank pays only the cost of producing the notes. These Federal Reserve notes are claims on the assets of the issuing Federal Reserve bank and liabilities of the United States Government.

The law requires that each Federal Reserve bank hold collateral that equals at least 100 percent of the value of the currency it issues. Most of that collateral is in U.S. Government securities owned by the Federal Reserve System. It also includes gold certificates, special drawing rights or other "eligible" paper. Eligible paper can be bills of exchange or promissory notes, and some foreign government or agency securities obtained by the Federal Reserve.

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