How is United States currency backed/secured?
Federal Reserve notes are liabilities on the Federal Reserve’s balance sheet. The asset counterpart to the Federal Reserve liability takes the form of securities of the U.S. Treasury and government-approved enterprises (Treasury and federal agency securities represent the majority of the total collateral for currency in circulation). Because the value of currency in circulation changes daily, the Reserve Banks monitor and report changes in net payments to the Board. Net payments represent the difference between the amount of currency that the Reserve Banks pay to and receive from depository institutions. If net payments are positive, the Federal Reserve will typically purchase securities through open market operations in an amount equal to the net increase of currency in circulation to offset the monetary policy implications of the drain on depository institutions’ balances held at the Reserve Banks. Similarly, if net payments are negative, the Federal Reserve will typically sell secur
