Video: What Is a Federal Reserve Note?

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A Federal Reserve Note is issued by the Federal Reserve Bank in a given region, and they are used for exchange between the federal government and the banks in their district to create or reduce liquidity. Find out how Federal Reserve Notes have higher priority for payout than currency with help from a portfolio manager in this free video on money management and personal finances.

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Video Transcript

Have you read in the newspapers over the last months about the problems in the Federal Reserve Banks? Hi, this is Roger Groh of Groh Asset Management. Did you know that the Federal Reserve Board is so big that they have their own currency? And I don't mean dollars and tens and twenties and thirties...thirties? And I don't mean dollars and tens and twenties and hundreds, but I mean a whole separate currency. They're called Federal Reserve Notes and they function a lot like treasury bills, only these are issued by the Federal Reserve Bank in that region. What are they used for? Well, they're used for exchange between the fed and the banks in their district for creating or reducing liquidity. Why do that as opposed to just issuing dollars? In the old days, because the Federal Reserve Notes have higher priority for payout than currency, the likelihood you were going to get paid back was more, and so there was more acceptance of the Federal Reserve Notes than there was of actual currency. Is that true today? No, it's not. Should the fed do away with fed notes? Maybe. It'd be a great way to save money. I'm Roger Groh with Groh Asset Management. Thank you very much for spending time with me.

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What Is a Federal Reserve Note?

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