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The Federal Reserve Act says that a Federal Reserve Note is an Advance from the Board of Governors of the Federal Reserve to a Federal Reserve Bank and serves NO OTHER PURPOSE.

When Federal Reserve Notes are circulated to member Banks, they become a Liability of the issuing Federal Reserve Bank and an Obligation of the United States.

I don't understand how they become an Obligation of the United States if they are a liability of Federal Reserve Banks.

An obligation is a debt liability, and so if it is a liability of a Federal Reserve Bank, how is it also a liability of the United States?

I know that Federal obligations can be used by Federal Reserve Banks as collateral for Advances of Federal Reserve Notes, so is it perhaps because Federal Reserve Notes are backed by Federal Obligations that the Federal Reserve Notes themselves are also a Federal Obligation?

The Uniform Commercial Code says that a Contract manifests an Obligation and a claim, so additionally, what is the claim that a bearer of a Federal Reserve Note holds against the United States?

Is it an Obligation of the United States because it enters the hands of United States Citizens? Is the "claim" the dollar bill's ability to purchase products and services in the Economy under Jurisdiction of the United States? Is the United States' Obligation to facilitate and promote economic activity so Federal Reserve Note bearers are able to participate in economy?

I apologize for posing many questions, but after reading several Acts of Congress and much of the CFR, I see several possibilities and I just don't have the precise knowledge to know whether any of my conjecture is correct, and I have not been able to find an answer online that satisfies what I am seeking.

Please forgive any gaps in my understanding. And please correct me if my understanding is incorrect.

Thank you.

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  • You read much of the CFR? Really?
    – littleadv
    Jun 27, 2022 at 0:39
  • I've read a lot of it, yeah. Not nearly the whole thing, but I've read a few complete titles and maybe 100 additional sections scattered throughout. It's a lot of information to sort and absorb. Some of the text is convoluted, so I have to parse paragraphs very carefully to understand what they mean. Drawing connections takes time and focused effort.
    – user117793
    Jun 27, 2022 at 0:54
  • 2
    I struggle to believe you not being a "consumer". You clearly have electronic devices and access to the Internet.
    – littleadv
    Jun 27, 2022 at 1:16
  • 3
    Are you a Sovereign Citizen?
    – RonJohn
    Jun 27, 2022 at 5:47
  • 1
    This really isn't a personal finance/personal money question. See past discussion on Meta about what is and isn't on topic. VTC.
    – keshlam
    Nov 4, 2023 at 19:00

1 Answer 1

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You misread the statute. You're referring to the 12 USC Sec. 411:

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

The statute authorizes the Board of Governors to issue their notes at their discretion for the purpose of making advances ... and for no other purpose. That means that the Board of Governors cannot authorize issuance of notes for any other purpose but for making advances to the Federal reserve banks.

The statute then continues and says that these notes are obligation of the Unites States and defines them as the legal tender in the US.

The Federal Reserve Board of Governors acts as the US central bank and this section authorizes them to issue currency for use in the United States. The United States then guarantees the value of the currency (since it is a United States obligation). The government guarantees the redemption in "lawful money" on demand at the US treasury. "Lawful money" is coins and treasury notes.

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  • How does the United States guarantee the value of the currency? Does that just mean that it is "legal tender" and that they will always accept it for repayment of debt?
    – user117793
    Jun 27, 2022 at 1:12
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    @listeninlot by allowing you to exchange these notes for "lawful money".
    – littleadv
    Jun 27, 2022 at 1:15

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