United States Notes

[Pottapaug1938]

Much has been made, in this and other areas of Quatloos, by those who offer us some sort of gibberish about Federal Reserve Notes vs. United States Notes (which, since they ceased being issued in 1971, have rarely been seen by those under 40). The web site www.bep.treas.gov/historicalllegislation.html has some interesting reading on it; but this jumped out at me:

Riegle Improvement Act

Section 5119(b)(2) of Title 31, United States Code, was amended by the Riegle Community Development and Regulatory Improvement Act of 1994 (Public Law 103-325) to read as follows: "The Secretary shall not be required to reissue United States currency notes upon redemption." This does not change the legal tender status of United States Notes nor does it require a recall of those notes already in circulation. This provision means that United States Notes are to be cancelled and destroyed but not reissued. This will eventually result in a decrease in the amount of these notes outstanding.

United States Notes are an obsolete form of currency last printed by the Bureau of Engraving and Printing in 1968. The Riegle Community Development and Regulatory Improvement Act, Public Law 103-325, codified at 31 U.S.C. 5119(b)(2), enacted in September 1994, amended 31 U.S.C. by canceling the requirement to reissue these notes when they are redeemed.

Some numismatic groups have expressed interest in selling selected notes to the public. The Bureau of Engraving and Printing consulted with Treasury's Financial Management Service and the Bureau of the Public Debt, and the following determination was made:

Releasing the notes to the public will violate the spirit of the act, which authorized the Secretary to "not be required to reissue United States Notes upon redemption."
The Bureau of Engraving and Printing lacks the legal statutory authority to sell these notes to the public.

The Bureau of Engraving and Printing lacks any mechanism by which it could release the notes to the public now that the requirement to reissue them when redeemed is no longer in effect.

[David Merrill]

The distinction between Federal Reserve notes and United States notes is best described by the courts:

In the exercise of that power Congress has declared that Federal Reserve Notes are legal tender and are redeemable in lawful money.

and

United States notes shall be lawful money, and a legal tender in payment of all debts, public and private, within the United States, except for duties on imports and interest on the public debt.

[Cathulhu]

On a vaguely related note, gold dropped pretty radically yesterday. I expect a certain amount of rebound, but I'm not at all surprised. It's a useful, pretty metal. It is not legal tender, despite what the village idiot thinks.

[Pottapaug1938]

I might have known that the guy from Colorado would snap at this thread like a brook trout at a juicy fly. Of course, he is wrong yet again; because the language that he quotes from the Ware case has been modified by statute in the years since that particular language was used. My Series 1928D $2 bill says "this note is a legal tender at its face value for all debts public and private", and my Series 1963 $2 drops the words "at its face value". And, unsurprisingly, he mines a quote, from among the dicta, that has nothing at all to do with the holding in the case.

Whatever has been said about United States Notes in the past, the Riegle Act makes clear that they are no longer necessary. The stock of USNs was destroyed in 1996; and if you see a USN in circulation today, it's often because some kid raided someone's currency collection, some little old lady deposited her stash of paper money in the bank, or a coin dealer decided to give out his lesser-grade specimens in change (which is how I've gotten several; and they get swapped to my Coin Collecting Merit Badge Scouts in exchange for $5 in other currency).

[fortinbras]

United States Notes were first issued during the Civil War, when the money supply, of coins made of gold or silver or the paper that was exchangeable for gold or silver, was inadequate for normal purposes. The US Notes were true fiat currency, not backed by gold or silver or any other specific collateral, their value was entirely on faith in the govt. It was because they were fiat currency that Congress explicitly declared them to be both legal tender and lawful money (the two expressions each come from a different proposal for US Notes, which were melded before finally being passed by Congress; in 1913 the US Treasury issued a legal opinion that the two terms were simply two names for the same single thing, but economists and some historians might disagree); for this reason, United States Notes were also known as "legal tender notes". Congress soon provided that the amount of US Notes would remain extremely limited - a total dollar amount that assured that US Notes would never be more than about 5% of the total currency in circulation; this dollar amount limitation made it very awkward for the govt to issue more US Notes over the years because it was very cumbersome calculating the number of US Notes in existence in order to be sure not to exceed the limit.

The two quotations that DVP extracts from court cases are actually quotations from old statutes, enacted decades before the court cases. The two court decisions themselves, Rickman and Ware, both held that the 1913 provision that Federal Reserve Notes could be "redeemed for lawful money" did not guarantee that they would be replaced by obsolete forms of currency now having a collectors' price above the face value - such as United States Notes and Silver Certificates and gold coins - but that, in today's banking, these Federal Reserve Notes could be exchanged for other FRNs or for current coinage, not for rare old currency.

Around 1982, Congress updated the law to authorize the issuance of something called United States Currency Notes, but these have never been issued. Judging from the reference to the 1994 Riegle law, it appears that this provision may also be a dead letter.

[David Merrill]

The reason that US notes shall be lawful money and Federal Reserve notes are only redeemable in lawful money is that FRNs are elastic, and US notes are not.



While we find that United States notes are fixed in the amount allowed in circulation and cannot be used for reserves - fractional lending.

(b) The amount of United States currency notes outstanding and in circulation—
(1) may not be more than $300,000,000; and
(2) may not be held or used for a reserve.

[Pottapaug1938]

United States Notes were first issued during the Civil War, when the money supply, of coins made of gold or silver or the paper that was exchangeable for gold or silver, was inadequate for normal purposes. The US Notes were true fiat currency, not backed by gold or silver or any other specific collateral, their value was entirely on faith in the govt. It was because they were fiat currency that Congress explicitly declared them to be both legal tender and lawful money (the two expressions each come from a different proposal for US Notes, which were melded before finally being passed by Congress; in 1913 the US Treasury issued a legal opinion that the two terms were simply two names for the same single thing, but economists and some historians might disagree); for this reason, United States Notes were also known as "legal tender notes". Congress soon provided that the amount of US Notes would remain extremely limited - a total dollar amount that assured that US Notes would never be more than about 5% of the total currency in circulation; this dollar amount limitation made it very awkward for the govt to issue more US Notes over the years because it was very cumbersome calculating the number of US Notes in existence in order to be sure not to exceed the limit.

The two quotations that DVP extracts from court cases are actually quotations from old statutes, enacted decades before the court cases. The two court decisions themselves, Rickman and Ware, both held that the 1913 provision that Federal Reserve Notes could be "redeemed for lawful money" did not guarantee that they would be replaced by obsolete forms of currency now having a collectors' price above the face value - such as United States Notes and Silver Certificates and gold coins - but that, in today's banking, these Federal Reserve Notes could be exchanged for other FRNs or for current coinage, not for rare old currency.

Around 1982, Congress updated the law to authorize the issuance of something called United States Currency Notes, but these have never been issued. Judging from the reference to the 1994 Riegle law, it appears that this provision may also be a dead letter.

The Riegle law also makes the distinction between FRNs and USNs legally meaningless. To contend that USNs, which are no longer issued and no longer exist except in collections, are "lawful money" while FRNs are not is to argue an absurdity -- although that won't stop some people from trying. I suspect that, were a court case to come up dealing with the issue, the court would rule accordingly. The "lawful money" phrase is, at best, an anachronism, as id the concept of "redeeming" a FRN except by going to a bank and getting other FRNs, or coins, in exchange.

[fortinbras]

Back in 1913, when the Federal Reserve Act was written, FRNs were not "legal tender" - although they may have been "lawful money". That is to say, FRNs could commonly be used in buying and selling but the real legal tender was gold/silver coinage and one could insist on being paid in gold/silver to the exclusion of FRNs (and to the exclusion of Gold/Silver Certificates).

But in 1933, as part of the Gold Clause Repeal, all currency issued by the govt - explicitly including FRNs - was made "legal tender". The effect is that someone receiving one form of currency could not thereby refuse it and insist on payment in another form of currency.

Presently the term "lawful money" seldom appears in the statutes, but it does occur in the statutes on transportation and shipping, to the effect that damage/loss to cargo and the wages of shipping workers will be made "in lawful money". So far no lawsuit has challenged the use of FRNs for this purpose. The provisions are there to assure that such payments are not made in things like discount coupons or some obscure foreign currency that could not be exchanged at the proper value in US money. Shipping workers seem to be quite content to be paid in FRNs.

[Pottapaug1938]

I'll bet that the "lawful money" provisions also apply to industries such as coal mining, where in the old days miners who didn't want the dirtiest and most dangerous jobs accepted payment in "scrip" or tokens which were only redeemable at the company store or in transactions with the company.

[Cathulhu]

Load sixteen tons, what do you get,
Another day older and deeper in debt,
Saint Peter don'cha call me, cuz' I can't go
I owe my soul to the company store.

[Pottapaug1938]

This site (of the Bureau of Engraving and Printing) is well worth perusing:

http://www.moneyfactory.gov/historicallegislation.html

Among the things it brings to mind is the issue of whether an ink stamp, reading something like... say, "redeemed in lawful money pursuant to 12 USC 411", qualifies the application of the following:

Defacement of Currency

Defacement of currency is a violation of Title 18, Section 333 of the United States Code. Under this provision, currency defacement is generally defined as follows: Whoever mutilates, cuts, disfigures, perforates, unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, Federal Reserve Bank, or Federal Reserve System, with intent to render such item(s) unfit to be reissued, shall be fined under this title or imprisoned not more than six months, or both.

Defacement of currency in such a way that it is made unfit for circulation comes under the jurisdiction of the United States Secret Service.

Does such a stamped inscription trigger the application of this provision? I don't know; but having found out that currency with such stamps are routinely withdrawn and destroyed, I suspect that, were a court case to arise under it, the answer might well be "yes".

[David Merrill]

This site (of the Bureau of Engraving and Printing) is well worth perusing:

http://www.moneyfactory.gov/historicallegislation.html

Among the things it brings to mind is the issue of whether an ink stamp, reading something like... say, "redeemed in lawful money pursuant to 12 USC 411", qualifies the application of the following:

Defacement of Currency

Defacement of currency is a violation of Title 18, Section 333 of the United States Code. Under this provision, currency defacement is generally defined as follows: Whoever mutilates, cuts, disfigures, perforates, unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, Federal Reserve Bank, or Federal Reserve System, with intent to render such item(s) unfit to be reissued, shall be fined under this title or imprisoned not more than six months, or both.

Defacement of currency in such a way that it is made unfit for circulation comes under the jurisdiction of the United States Secret Service.

Does such a stamped inscription trigger the application of this provision? I don't know; but having found out that currency with such stamps are routinely withdrawn and destroyed, I suspect that, were a court case to arise under it, the answer might well be "yes".

You failed to read that carefully.

Stamping cash is superfluous legally. Especially when it is stamped in a way that everybody still accepts it for its money value in trade.



What happens though is that people get curious and learn how to research the United States Codes, starting with the remedy from elastic currency written into the 1913 Fed Act itself. They just punch in the address into their address bar:

www.law.cornell.edu/uscode/

Then they get the satisfaction of plugging the 12 in and the 411 in and viola! - They have learned how to do legal research into federal law! - Off a bill with more worth than the paper it is printed on.

The value of knowing remedy will always be as intended, executed prior to getting the cash in hand. If you endorse private credit then you bond the extra money by approving your bank can lend on your funds in account. If you demand lawful money though, then your bank is a simple repository for your funds. This is why US Bank traditionally converts your checking account to a non-interest bearing account; they are getting no benefit and you should get no interest because you are not "lending" US Bank your funds for fractional lending purposes.

The readers should take heed to the posts above with Congress and the courts defining and describing the distinctions between US notes and Fed notes. Layman interpretations often have mistakes like yours.


Regards,

David Merrill.

[Pottapaug1938]

I will remind everyone that, according to a senior official of the Boston FRB, notes defaced with stamped messages are routinely withdrawn from circulation and replaced by undefaced notes. No other action is taken. The stamped message is ignored by the Fed and by the banks which transmit the defaced notes to the Fed.

I would venture to say that most people who get the notes before they ever reach a bank couldn't care less what the stamped message says, as long as the bill is genuine. And, even if they did research 12 USC 411, and even if they cared what it says, they would also find out about 31 USC 5103, and simply trade their defaced notes for undefaced notes.

[Pottapaug1938]

I might also add that one of the main reasons why most checking accounts bear no interest is that the expense of maintaining these accounts makes providing interest unprofitable, with interest rates as they are. I confirmed this with my local bank, and also confirmed that the bank takes no notice of defaced currency except to ship it to the Fed in exchange for undefaced currency, if they so choose.

The "Where's George" stamps are usually placed so that they do not interfere or obscure the devices on the various notes used; and I have never had a problem spending any of them (I like to spend them as far away from home as possible. If I'm in Canada, I'll even swap the notes for Canadian funds, just to give the notes some extra mileage).

[notorial dissent]

Since the stamp has exactly ZERO effect, like all of Merrill's other magic incantations, it really is a non issue. I've also gotten bills with all sorts of things on them, some which actually came from the bank when they were being processed for some reason.

[David Merrill]

My favorite part is how Congress coerced parity with Fed notes by lumping United States notes into United States currency notes.

Title 31 U.S.C. §5115
Notes

In the section, the words “United States currency notes” are substituted for “United States notes” for clarity and consistency in the revised title.

This was necessary before they could enact Title 31 into Positive Law.

[Prof]

DMVP's stamps remind me of the something I see from time to time down here in South Texas. Once in a while, I'll get a bill with a "blessing" on it from a curandero or brujo (healer or witch), written to bless the money, get the money to "return," for good luck, etc.

Such writtings may well be more effective than the DMVP stamp; who knows?

[Prof]

[

[Cathulhu]

DMVP's stamps remind me of the something I see from time to time down here in South Texas. Once in a while, I'll get a bill with a "blessing" on it from a curandero or brujo (healer or witch), written to bless the money, get the money to "return," for good luck, etc.

Such writtings may well be more effective than the DMVP stamp; who knows?

When I was on assignment at the U.S. Embassy in Japan, I brought back a manekki-nekko cat statue, such as you see in many asian shops, to wave the money in. Every bit as effective...

[notorial dissent]

And certainly more decorative.