How the Fed Affects Our Physical Cash Money

TL;DR

U.S. currency used to be backed by physical commodities like silver, but now it is backed by the full faith and credit of the United States.

Transcript

Alison Southwick: Okay, everybody. Stop what you're doing and pull out a dollar bill. What does it say on the top? Federal Reserve Note, right? Morgan, why does it say that? Morgan Housel: Because the Fed is really the sole controller of the currency. They're backing the value of the dollar. That wasn't always the case in the past. Robert Brokamp: ... Read More

Key Insights

• 🥹 U.S. currency used to be backed by physical commodities like gold and silver, but it is now backed by the full faith and credit of the United States.
• ☄️ The value of a dollar comes from its role in paying taxes, as it is the only currency accepted for this purpose in the U.S.
• 🧔‍♀️ Martha Washington is the only woman to have her portrait appear on U.S. paper currency.
• 👣 The largest denomination note ever printed was $100,000, but it was not circulated to the public.
• 💵 The quarter and the dollar bill are the only coins and notes that are worth more than their production costs.
• 🇺🇸 Two-thirds of U.S. currency is held outside the United States.
• 💱 Saddam Hussein was found in possession of U.S. currency when he was captured.

Questions & Answers

Q: Why does U.S. currency currently say "Federal Reserve Note" instead of "Silver Certificate"?

U.S. currency used to be backed by physical commodities, like silver, and could be exchanged for silver at the U.S. Treasury. However, now the value of the dollar is based on the full faith and credit of the United States, so it is called a Federal Reserve Note.

Q: What is the value of a dollar if it is not backed by gold or silver?

The value of a dollar comes from its role in paying taxes. In order to do business or work in America, taxes must be paid in dollars. This demand for dollars gives them value.

Q: Who is the only woman whose portrait has appeared on U.S. paper currency?

Martha Washington is the only woman whose portrait has appeared on U.S. paper currency. She was featured on the face of a $1 silver certificate.

Q: What is the largest denomination note ever printed?

The largest denomination note ever printed was $100,000. However, these notes were never circulated to the public and were only used for transactions among Federal Reserve Banks.

Summary & Key Takeaways

• U.S. currency used to be backed by physical commodities like silver, which allowed people to exchange their cash for silver.

• The value of the dollar comes from its role in paying taxes, as it is the only currency that can be used for this purpose in the strongest economy in the world.

• The largest denomination note ever printed was $100,000, but it was never circulated and used solely for transactions among Federal Reserve Banks.