Bailey's Lament

[Demosthenes]

Brian!

[fortinbras]

I did not know Federal Reserve Notes were COINED. At one time "FRNs" were legal tender (just like they still are today) but they were redeemable in LAWFUL money. Huh??

FRNs did not become legal tender until an Act of Congress in 1933. Other govt-authorized currency that was not legal tender (until 1933) included Silver Certificates. It may now seem odd that some govt-issued money was not legal tender, but prior to 1933 (when the US was still on the gold standard), currency came in at least two categories: Legal tender was the highest level and usually consisted of gold or silver metallic coins. It was legal tender because it was considered the "best kind" of money, the money you'd trade up with paper currency for, the kind that could not be refused. Anything else was not legal tender, and was often called lawful money because it had been authorized by Congress although it was not, itself, gold or silver (but this was not the only meaning of "lawful money").

But not always: In 1862 Congress authorized a limited issue of "United States Notes" - paper money that, unlike Silver Certificates, did not promise to be tradable for precious metal or to have precious metal as backing. US Notes were fiat currency and their value rested on the good faith of the federal govt. But, to make them palatable, Congress included in the law the declaration that they were, simultaneously, both legal tender and lawful money. The use of both expressions seemed to come from the fact that the final Act was the mix of two different bills to authorize US Notes, one used one phrase and the other used the other phrase. Some time later the US Treasury legal office expressed the opinion that the two expressions meant the same thing. As far as I know, US Notes are the only govt-issued currency explicitly identified as "lawful money" in an Act of Congress.

{As an aside, I think the one and only federally-issued money which was not declared legal tender, and still is not, is the "trade dollar", a silver coin issued circa 1880 for use in trade with China. It was a different weight than the silver dollar and was peculiar to Chinese usage. It was discontinued after a few years and never approved for domestic currency. A collector could give you a lot more insight on this peculiarity.}

In 1913, in the Federal Reserve Act, the FRNs were originally intended as sort of markers to be shifted among the Federal Reserve Banks, and were declared to be redeemable in "lawful money" - which, judging from the Congressional reports on the proposal, simply meant that an FRN could be exchanged for some other form of govt-issued currency such as Silver Certificates or even silver or gold coins. The distinction at the time involved a very very old insistence on precious metals as the measure of money.

But in 1933, one of the serious problems that was impeding the recovery from the Depression was a pointless but extremely frustrating usage of "gold clauses" in contracts. All sorts of contracts included, among the terms of payment, a clause that payment would be made in gold coin (not in paper money, not even in Gold Certificates). This clause was so ubiquitous, even in the most humdrum contracts, that it was calculated that if all the contracts were to be paid on the same day, there was not enough gold coin to satisfy even half of them. The effect was almost a repeat of a biblical phenomenon: to get the gold coin to go through the ceremony of paying off the contract, debtors were being forced to "rent" gold coins at a premium, paying perhaps $25 or more in silver or paper for a $20 gold coin, just to give to the creditor. This effect was a definite frustration of the power of Congress -- in Article 1, section 8, clause 5, "to coin money [and] regulate the value thereof". For that reason, the Gold Repeal resolution of June 1933 declared that gold clauses were against public policy -- and therefore could not be legally enforced -- and moreover took the entire country off the gold standard. There is a very eventful and interest legal history to this. As part of this repeal, ALL other govt-issued currency, including paper such as Silver Certificates, US Notes, and (explicitly) FRNs were declared to be "legal tender" - they were all the best class of money, completely interchangeable with each other, and could not be refused as a means of payment in hopes of getting a better class of money.

However, in all this time, nobody amended the provision of the 1913 Federal Reserve Act, so although other laws have elevated the FRN to legal tender, that one provision has not been changed, and it continues to confuse some people to this day. Since the 1960s, Silver Certificates (which, in their last years, were only for the smallest denominations - $1, $2 and $5) and US Notes have ceased to be issued, leaving FRNs as the only paper money. There have been court decisions that the provision of the Federal Reserve Act means, now, that FRNs are exchangeable for other FRNs or for coins; but nobody can present FRNs and expect to exchange them for extinct (and therefore of considerable market value to collectors) forms of currency.

[Brian Rookard]

Brian!

Demo!!! (been a while)

[notorial dissent]

Fortinbras,

That is not exactly true. When that was written the Federal reserve notes they were referring to actually were notes against the Federal Reserve that were strictly used "internally" and only for money transfer between Fed Reserve member banks, and were not intended for external use. This was in the day before electronic transfer and they still held to the idea that you had to move money around physically for it to be there. They hadn't figured out about central book keeping at that point. Those notes were never issued to the public and were never in circulation. They could be cashed by the holding bank for US notes or coin if they needed it to bolster up their reserves or deal with a run, but they never left the bank itself except to go back to the Fed or to another bank. I agree, it is an archaic law, and has been misinterpreted a number of times, but I think the legislative history points to a different interpretation than most of the money nuts want to use. Particularly since the Fed notes that were in circulation at the time, even though not technically legal tender, could always be exchanged for coin or other currency at any bank, that does not support the other interpretation of that law. At this point in time it is a moot issue, but still one misinterpreted by many to justify their "strongly held delusion" that FRN's are not real money.



edited for mind slippage

[Brian Rookard]

I think you may be replying to Fortinbras ... lol.

[notorial dissent]

My bad, still long time no see, and welcome back.

[Gregg]

I did not know that $2 bills were ever issued in silver certificates, I thought that all the $2 were US Notes. I know that the 1963 series, the last issued before the 1976 series, were all US Notes and that somehow figures into one theory of why Kennedy was shot, something about him issuing US Notes interfering with the Federal Reserve plan to rule the world...(also in 1963 $5 US notes were issued)

The inter bank notes someone mentioned included the largest denomination notes ever issued by the USA, the $100,000 (maybe it's $10,000) Gold Certificates. I once had a $5 gold certificate I got in change when I was a teenager, I kept it for a few years thinking it was either very valuable (it wasn't) or was actually still redeemable for a $5 gold coin (and it wasn't that either) but when I began to dabble in coin collecting I found out it was basically worth $5 and spent it somewhere. It was in pretty bad shape, I think it may have been a 1953 series, but that was a long time ago, so I can't be sure.

[fortinbras]

$2 bills were issued as US Notes 1862-1963; as Silver Certificates 1886-1899; and as FRNs since 1976. They have not been especially popular, partly because cash register drawers don't have a regular space for them. But you hear stories, once in a while, of them being used as a sort of tracking device: For example, some Army base pays all of its soldiers in one payday with $2 bills, then a week later announces to everyone in the nearby civilian town that, if they got paid by anybody with a $2 that is proof that the Army base is good for the local economy.

The last $5 gold certificate was issued in 1874. I am really impressed that you had one when you were a teenager. You should have held onto it; now, even beat up ones can command hundreds of dollars from collectors. (It was the $5 SILVER cert that was last issued in 1953.)

[Judge Roy Bean]

Interestingly enough, an acquaintance is a collector of two-dollar bills and his theory of their "value" is that they are so rarely encountered that most people hoard them just out of curiosity.

[Pottapaug1938]

Interestingly enough, an acquaintance is a collector of two-dollar bills and his theory of their "value" is that they are so rarely encountered that most people hoard them just out of curiosity.

That's been my experience with not only $2 bills but also half dollars and even the new dollar coins. The logic -- if you can call it that -- goes something like, "I hardly ever see this. Therefore, it's rare. Rare coins and bills are 'worth money', and will be worth even more money someday. Therefore, if I save every one of these that I can find, someday I'll be rich/put my kid through college/take a round-the-world trip...", and so on. I know several coin dealers who regularly see people walk into their shops with rolls of Bicentennial quarters, half dollars and dollars, and original bank packs of $2 bills from 1976. These people are astounded when they aren't even offered face value for the coins, and only face value for the bills. "But, these are rare," the say. "You never see them in circulation anymore!" My friends gently explain to them that the coins and bills were 1) produced in the billions and 2) were widely hoarded by people juat like them.

I first saw this mindset in action in 1964. Before then, half dollars were common in circulation; but as soon as the JKF half dollar came out, the "word on the street" was that "half dollars are worth money". Although the coin shortage (fueled by speculators betting on a rise in silver prices) would have driven most halves out of circulation anyway, I noticed the halves disappearing long before the dimes and quarters did. At my junior high school, fellow students with fat allowances from Daddy bought every half that the cafeteria cashiers took in, because "they will be worth money someday". Yeah -- eventually they were; but as a result of thei ractions everyone else got the message "save half dollars"; and nowdays I've even had half dollars rejected by cashiers bnecause "we only take American money here".

[Parvati]

nowdays I've even had half dollars rejected by cashiers bnecause "we only take American money here".

Oh, god. *Please* tell me they were young'uns.

Along those lines, a nearby city (in a serious state of blight) started loading the change dispensers in the high-speed rail terminals with those gold Sacajawea coins. Sadly, the locals didn't realize they were legal coinage--they thought they were "tokens" for the machines that dispensed passes for the rail system.

[Gregg]

$2 bills were issued as US Notes 1862-1963; as Silver Certificates 1886-1899; and as FRNs since 1976. They have not been especially popular, partly because cash register drawers don't have a regular space for them. But you hear stories, once in a while, of them being used as a sort of tracking device: For example, some Army base pays all of its soldiers in one payday with $2 bills, then a week later announces to everyone in the nearby civilian town that, if they got paid by anybody with a $2 that is proof that the Army base is good for the local economy.

The last $5 gold certificate was issued in 1874. I am really impressed that you had one when you were a teenager. You should have held onto it; now, even beat up ones can command hundreds of dollars from collectors. (It was the $5 SILVER cert that was last issued in 1953.)

It must have been another denomination then, it was definitely a Gold Certificate and a more or less modern size bill. At one time I took it to a coin store and they told me it had little value in it's condition. I caught it because it had a yellow treasury seal, as opposed to a green one on a FRN or blue on a Silver Certificate. We're talking late 70's here so my memory is kind of vague about it now.


ETA: I got out my little book and did some checking, it seems it must have been a $10 Gold Certificate from the 1928 Series. That is the only series that is similar to modern FRNs and came in $10, $20, $100 denominations. At that age I'm pretty certain I wouldn't have gotten a $20 in change, because having a $20 bill to break would have been a rarity. I honestly don't think I ever handled a $100 bill until I was 18 years old, except to give change at a job.

[Gregg]

Interestingly enough, an acquaintance is a collector of two-dollar bills and his theory of their "value" is that they are so rarely encountered that most people hoard them just out of curiosity.

I have heard since I can remember that $2 were bad luck to have on you. I dunno where from or why, but in eastern Kentucky anyway, they're considered a bad luck charm...

[Pottapaug1938]

$2 bills were issued as US Notes 1862-1963; as Silver Certificates 1886-1899; and as FRNs since 1976. They have not been especially popular, partly because cash register drawers don't have a regular space for them. But you hear stories, once in a while, of them being used as a sort of tracking device: For example, some Army base pays all of its soldiers in one payday with $2 bills, then a week later announces to everyone in the nearby civilian town that, if they got paid by anybody with a $2 that is proof that the Army base is good for the local economy.

The last $5 gold certificate was issued in 1874. I am really impressed that you had one when you were a teenager. You should have held onto it; now, even beat up ones can command hundreds of dollars from collectors. (It was the $5 SILVER cert that was last issued in 1953.)

It must have been another denomination then, it was definitely a Gold Certificate and a more or less modern size bill. At one time I took it to a coin store and they told me it had little value in it's condition. I caught it because it had a yellow treasury seal, as opposed to a green one on a FRN or blue on a Silver Certificate. We're talking late 70's here so my memory is kind of vague about it now.

I'm wondering if you had a "North Africa" bill. Those silver certificates had yellow seals, and were printed for U.S. troops invading North Africa. The idea was that if the Vichy French repelled the landings in November of 1942, or if the Germans were later able to kick us out, and the currency was captured, we could simply declare yellow-seal bills invalid.

[Pottapaug1938]

Interestingly enough, an acquaintance is a collector of two-dollar bills and his theory of their "value" is that they are so rarely encountered that most people hoard them just out of curiosity.

I have heard since I can remember that $2 were bad luck to have on you. I dunno where from or why, but in eastern Kentucky anyway, they're considered a bad luck charm...

That was partly because $2 was traditionally the going rate for a tryst with a rent-a-girlfriend; and having one made people think that you had the bill with that usage in mind. Of course, many of the loudest tut-tutters were probably doing the same thing, but paying in singles....

[Parvati]

Really? You are surprised by ANY of this?

No, I'm not. I worked in that wretched city for nearly 5 years, so I can't say I was surprised in the least. Saddened, surely, but not surprised.

[Gregg]

I'm absolutely positive it was a Gold Certificate, because it was interesting enough for me to go research it at the time, which was before the internet and involved going to a library. As I deduced above, it was a $10, series 1928.

[notorial dissent]

My only real exposure to the $2 has always been in relation to betting at tracks, not mine, but other people's. The first ones I ever saw were a friend of the family's winnings that he had gotten one particular day at the track, the only time I think he had ever won as well. I think those were probably from the 1950's series and I don’t remember if they were silver notes or not, I don’t think they were, but I couldn’t really say as I never looked that closely. I do remember at one point you could get booklets like old fashioned check registers of them from outfits like Spencer Gifts, remember them???, for an outrageous price, and later the overpriced uncut sheets of them as what I would have called curiosities, they called them collectors items. Until 1976, the only source I knew of for them would have been from the tracks, as local merchants never had them, used them, or wanted them for that matter, and I’m not even sure you could get them at the bank without specifically asking for them in advance. I seem to remember a teller friend of mine telling me that they used to only order them from the Fed around Christmas time as grandparents tended to give them as Christmas presents, rather like my grandparents giving out silver dollars as presents when I was a kid. The next time I was really aware of the $2's was during the bicentennial when they came out with the new version, and I very intentionally got a few of those, and they weren’t really available very long either when it came right down to it. Over the years, I think I can probably count on three fingers the number of times I’ve actually gotten them in change or even seen them otherwise. Oddly enough, the last time I saw one was from a taxi driver friend who had gotten one as a tip. Otherwise, my local merchants universally do not want them, Suzies or Sackies, and they look at you strangely if you try to give them a half dollar. I have to admit that I agree with them, half dollar coins are a nuisance, and the dollar coins even more so since you can’t tell what they are, and I don’t care if they color them or not, they look and feel like quarters, and I have gotten more of them in change as quarters than ever as anything else, nothing like going to count out your change when you get home to discover you have two dollar coins in place of the two quarters you were expecting, although far better than discovering you have two quarters instead of the two dollar coins you thought you had. Then you have to remember to intentionally spend them as dollar coins and not as quarters as most clerks will never notice.

[Pottapaug1938]

The problem with half dollars and dollar coins aren't just with the people who are expected to use them; it's also with the merchants. Most cash registers today have five coin slots, which could easily accommodate haves or dollar coins; and many have six, which could accommodate both. These same regiaters can accommodate five different types of bills. However, in practice, the extra slots for coins usually hold currency bands, rubber bands, coin wrappers or anything else desired; and the fifth currency slot is used to store extra rolls of coins. Halves or dollar coins get thrown in with the currency bands, and go in with the next bank deposit; and the same thing happens with $2, $50 and $100 notes, because they are tossed under the register tray and don't come out again until it's time for that bank deposit.

The other problem with the dollar coin is that it's a victim of the vending machine industry. When the smaller dollar coin was proposed in the mid-70s, it was planned to be 11-sided, to make it more distinguishable in a pocket, and was supposed to have an updated classic coin design. However, political pressure forced the use of the Susan B. Anthony portrait, and the reuse of the Apollo 11 motif; and whining, crying and lobbying from the vending machine industry, claiming that "11-sided coins won't work in our machines, and we'll have to spend shareholder profits to refit them if you insist on making those horrible coins" made the new dollar coin round (with an 11-sided interior to satisfy the smartasses). The fact that no one can reliabley distinguish a quarter from a dollar coin, even with the lettered edge and gold color, shows what a botch the new coin turned out to be.

Meanwhile, the Brits created a "round pound" that is easily distinguishable from coins of similar diameter; the Canadian loonie and toonie can easily be distinguished by touch; and the same goes for Euro coins. However, in the good old USA, we know better... and we have the most boring coinage around.

To echo what I said earlier about coin hoarding: nowadays, I see a lot of early-issue 50-state quarters, spent today by people who realize that the rolls of quarters they hoarded from 1999-2008 won't send their kids to college. They don't learn, though, because they are now hoarding the new Lincoln cent designs and the National Parks quarters....

[notorial dissent]

Pottapaug1938, quite true. The plain fact of the matter though is that most merchants don’t need the extra slots for other than what they use them for. Most of the time I seldom get more than a small handful of change at any one time usually quite a bit less than .50 so there wouldn’t be much reason for anything else. It is getting progressively rarer, at least here locally, for a merchant to take anything larger than a $20, and then they look at you funny because of all the counterfeiting that goes on. The only exception I can think of would be some place like Sam’s Club where people often do pay with wads of 20's or even sometimes with $100's, but most places won’t take anything over a $20 any more. Having been in the position of having to take cash for purchases large and small, I have the same reaction about the odd coins, I didn’t / don’t want them in my cash drawer.

The bit about the vending machine industry is at least partly true. I never understood why they couldn’t just set the machines for the difference in weight and do it that way, but that was just me. I still think the dollar coins should have been bigger or really different in some really obvious way, and of course they weren’t. You are quite right in that we did nothing to distinguish it, and I personally think that is a lot of the reason for the failure of them, but I don’t think even the large dollar coins were ever that much in vogue, they were too much of a headache to carry around with you. I wasn’t impressed with the changes to the design or the implementation, and they are still uninteresting. They make almost as much sense as the half dime and three cent pieces they used to make, and about as much use.

Quite true about the coin hoarding, they were produced in such vast quantities that they will never be scarce enough to gain any real value, and I have noticed the same here, all of a sudden I will get those older quarters in change. The coin promoters make them sound like a rarity and something that will get rarer, when in fact there are too many of them, and they are selling to people who haven’t clue one about what they are actually buying, or actually should be buying. I keep seeing the full page ads of “you too can own a capsule of these soon to be unavailable coins” for way more than the actual going price of them and they make it sound urgent and a one time opportunity, and I’m sure they must sell a lot of them that way to people who will only years later discover that they have a box of coins that cost them more than they can get for them at the bank.