Function of Federal Reserve Essay
An important function of the Federal Reserve is ensuring that enough cash is in circulation to meet the public’s demand.
An important function of the Federal Reserve is ensuring that enough cash—that is, currency and coin—is in circulation to meet the public’s demand. When Congress established the Federal Reserve, it recognized that the public’s demand for cash is variable. This demand increases or decreases seasonally and as the level of economic activity changes. For example, in the weeks leading up to a holiday season, depository institu¬tions increase their orders of currency and coin from Reserve Banks to meet their customers’ demand. Following the holiday season, depository institutions ship …show more content…
When currency f lows back to the Reserve Banks, each deposit is counted, verified, and authenticated. Notes that are too worn for recirculation (un¬fit notes) and those that are suspected of being counterfeit are culled out. Suspect notes are forwarded to the United States Secret Service, and unfit notes are destroyed at the Reserve Banks on behalf of the Treasury. Notes that can be recirculated to the public are held in Reserve Bank vaults, along with new notes, until they are needed to meet demand. Coin that is received by Reserve Banks is verified by weight rather than piece-counted, as currency is.
Today, currency and coin are used primarily for small-dollar transactions and thus account for only a small proportion of the total dollar value of all monetary transactions. During 2003, Reserve Banks delivered to