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Circulation of Money

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The amount of cash in circulation in the United States increased dramatically during the 20th century, as shown in the table below. (Figures are from statements published by the Treasury Department.)

Date Amount of
Cash in
of Cash per
June 30, 1910   $     3,148,700,000   $      34.07
June 30, 1920   $     5,698,214,612   $      53.18
June 30, 1930   $     4,521,987,962   $      36.74
June 30, 1940   $     7,847,501,324   $      59.40
June 30, 1950   $   27,156,290,042   $    179.03
June 30, 1960   $   32,064,619,064   $    177.47
June 30, 1970   $   54,350,971,661   $    265.39
June 30, 1980   $ 127,097,192,148   $    570.51
June 30, 1990   $ 266,902,367,798   $ 1,062.86
June 30, 2000   $ 571,121,194,344   $ 2,075.63
*In the United States

How Money Circulates

The Treasury Department ships new paper money and coins to the Federal Reserve Banks; the Reserve Banks pay it out to commercial banks, savings and loan associations, and other depository institutions. Customers of these institutions withdraw cash as they need it. Once people spend their cash at department stores, grocery stores, and so on, most of this money is eventually redeposited in depository institutions. As notes wear out or become dirty or damaged, depository institutions redeposit them at the Reserve Banks.

When Money Wears Out

Money wears out from handling and is sometimes accidentally damaged or destroyed. The average life span of a $1 bill, for example, is about 18 months. The $10 bill has about the same life span. For a $5 bill the average life is 15 months, and for a $20, two years. The $50 and $100 notes don't circulate as often as the smaller denominations, so they last longer—the $50 bill, about five years, and the $100, eight and a half years. The average life of a coin is 25 years.

Banks send old, worn, torn, or soiled notes to a Federal Reserve Bank to be exchanged for new bills. The Reserve Banks sort the money they receive from commercial banks to determine if it is "fit" or "unfit." Fit (reusable) money is stored in their vaults until it goes out again through the commercial banking system. Reserve Banks destroy unfit currency and return damaged and worn coins to the Treasury.

Redeeming Damaged Money

Paper money that has been mutilated or partially destroyed may in some cases be redeemable at full face value. Any badly soiled, defaced, torn, or worn-out currency that is clearly more than half of the original note can be exchanged at a commercial bank, which processes the note through a Federal Reserve Bank. More seriously damaged notes—those with clearly less than half of the original surface or those requiring special examination to determine their value—must be sent to the Department of the Treasury for redemption.

The redemption value of mutilated coins depends on their type, denomination, and the extent of their mutilation. Redemption of mutilated coins is handled by the U.S. Mint in Philadelphia. Coins that are merely bent or worn slick through natural wear are not considered mutilated and are exchangeable at full face value.

Used by permission of the Federal Reserve Bank of Atlanta.

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