How Legal Tender Is Issued in The U.S. Today
Paper money is a form of currency that is physically printed by the Bureau of Engraving and Printing, under authority of the Federal Reserve System. The Bureau of Engraving and Printing is part of the U.S. Treasury Department, whereas the Federal Reserve is not. In contrast to paper money, coins are physically produced by the U.S. Mint, within and under authority of the U.S. Treasury. The Federal Reserve System can authorize as much paper money as it sees fit, but the U.S. Treasury is restricted by law to a certain maximum amount of coinage in circulation.
The Federal Reserve System can increase the money supply by creating money to purchase U.S. Government securities on the open market. Article I, Section 8 of the Constitution explicitly contemplates U.S. Government "securities."
Those "open market operations" involve the buying and selling of U.S. government securities, including federal agency securities and also (as happened, for instance, in response to the recent economic turmoil) mortgage-backed securities. Federal agency securities have been issued by the federal government to finance deficit spending.
The Federal Reserve System can also increase the money supply by allowing banks to issue more loans, which is accomplished by reducing the reserve requirement ratio. This regulation of banks is pursuant to the Commerce Clause. Conversely, the Federal Reserve System can reduce the money supply by selling securities or by increasing the reserve requirement ratio.
Read more about this topic: Legal Tender Cases
Famous quotes containing the words legal, tender, issued and/or today:
“Lawyers are necessary in a community. Some of you ... take a different view; but as I am a member of that legal profession, or was at one time, and have only lost standing in it to become a politician, I still retain the pride of the profession. And I still insist that it is the law and the lawyer that make popular government under a written constitution and written statutes possible.”
—William Howard Taft (1857–1930)
“In a separation it is the one who is not really in love who says the more tender things.”
—Marcel Proust (1871–1922)
“We don’t invent our natures. They’re issued to us along with our lungs, our pancreas and everything else.”
—Michael Mann, U.S. screenwriter. Hannibal Lechtor (Brian Cox)
“Justice begins with the recognition of the necessity of sharing. The oldest law is that which regulates it, and this is still the most important law today and, as such, has remained the basic concern of all movements which have at heart the community of human activities and of human existence in general.”
—Elias Canetti (b. 1905)