When bills go bad: What happens when cash is no longer fit for commerce?
The Fed monitors – and shreds – currency to make sure our money is always good to go
The bills people are carrying in their wallets right now have a variety of futures ahead of them. Some may be used for food or fun, others for bills or transportation. But their ultimate future is inescapable: They’re going to get shredded then destroyed by an incinerator, or possibly turned into compost.
Like all things, dollar bills (known as “notes” around the Federal Reserve) wear out over time, and they need to be destroyed and replaced. Worn out bills can affect commerce if they are too dilapidated to be exchanged, said Lisa Perlini, head of the Federal Reserve Bank of Boston’s cash department. She added there’s something else at stake in the condition of our country’s currency.
“It’s the reputation of the United States,” Perlini said.
But how does the Fed protect the country’s reputation and those bills during their life cycles? How do the bills even make their way to the Fed to be assessed? And what exactly happens to that currency after its shredded?
The story of the note starts with the paper it’s printed on.
Currency paper is more durable, and higher denominations last longer
Anyone who’s sent a $5 bill through the wash knows that the paper money is printed on is far more durable than the typical paper filling, say, the world’s notebooks and copy machines – which is made primarily out of wood pulp. But U.S. currency paper is 75 percent cotton and 25 percent linen, so it lasts longer. Of course, some notes last longer than others.
Joe Bosco, the Boston Fed’s director of cash services operations, said lower value denominations like the $1, $5 and $10 are used most often, and consequently get worn out faster. The $10 bill actually has the shortest estimated life span, at 4.5 years, less than a third of the life expectancy of your average $100, which lives a robust 15 years. A list of the average U.S. currency life spans is below:
Bosco said there’s no age limit on bills. If it’s a good shape, any bill can circulate for years and years. But beat-up bills can also float around without being filtered out of the system. That’s because the Fed doesn’t always get a regular chance to check every bill.
Basically, the Fed gets the bills when a bank has more cash on hand than it needs. But though the Fed’s note-handling service is free, banks still have to pay to transport the cash, Bosco said. Sometimes to save on transportation charges, banks may hold onto that excess cash on hand.
Eventually, though, the bills will make their way to the Fed, where technology and human expertise will determine which ones stay in circulation.
If a bill isn’t “fit for commerce,” it’s shredded on the spot
Every single bill the Fed receives is sorted, analyzed, and bundled through one of the processing machines at its 28 cash processing locations. The machines are looking to verify that a bill that comes to the Fed as, say, a $20 bill is actually a $20. Then, it works to verify the bill is genuine. If the sensors identify bills as suspected counterfeits, they are rejected and examined again by well-trained cash handlers who determine if it is authentic or should be sent to the United States Secret Service for further examination.
If the bill is determined to be legitimate, the machine’s sensors measure whether it is “fit for commerce” by assessing variables including its color, firmness, and readability, or if it has tears, holes, or writing on it. Damage to security features – for instance, if the 3D security ribbon in a $100 is missing – can also doom a bill.
If the bill doesn’t meet fitness standards, it’s shredded on the spot.
Bosco estimates approximately 15 percent of all the $1 bills that pass through the doors at the Boston Fed are shredded, while the number is in the 5 to 10 percent range for higher denominations like the $50. Bosco said that while the Fed is shredding piles of unfit currency, the U.S. Bureau of Engraving and Printing is working constantly to replace those notes.
Recycled currency ends up feeding power plants … and tomato plants
Federal Reserve cash offices generated 5,287 tons of shredded currency last year, and 86 percent of it was recycled. But exactly how it was recycled depends on where it was shredded. At the Federal Reserve Bank of Atlanta's New Orleans branch, for example, the cash shreds are turned into compost for urban gardens. At the Salt Lake City branch of the San Francisco Fed, the shreds are burned to cure cement.
At the Boston Fed, the shreds are shipped to a local incinerator in Saugus, Mass., and turned into electricity for surrounding communities. Boston is one of 10 Reserve Banks or cash offices that helps the public get power from U.S. currency, even after its purchasing power – and its ink – fades.
Learn more about the Federal Reserve and cash on the San Francisco Fed’s cash page.
About the Authors
Jay Lindsay is a member of the communications team at the Federal Reserve Bank of Boston.
- cash ,
- cash flows ,
- cash and debit discount ,
- consumer payments
Episode 3: What is “a sharecropper’s education?” And when will it finally be gone?
Consumer Behavior and Payment Choice
How Low Can You Go? Charity Reporting When Donations Signal Income and Generosity
The Macroeconomics of Fiscal Policy