Since no legal definition of legitimate money has ever been provided, the term has led to a lot of confusion, especially in legal terms. For all intents and purposes, legal money should mean legal tender, but that`s not always the case. This caused a lot of confusion among law and banking students. «Legal tender» is a term used in the Federal Reserve Act, the law that authorizes the Board of Governors of the Federal Reserve System to issue Federal Reserve notes. The law states that Federal Reserve notes «are bonds of the United States and must be obtained from all national and member banks and Federal Reserve banks, as well as for all taxes, duties, and other public charges. They will be exchanged for legal money upon request from the U.S. Department of the Treasury, the City of Washington, the District of Columbia or any Federal Reserve bank. However, the law did not define the term «legal tender,» but until 1913, the only currency issued by the United States that was legally recognized as «legal tender» was various issues of «demand notes» (later known as «demand notes») and «United States notes» approved by Congress during the Civil War. Federal Reserve notes are no longer backed by assets such as gold. Instead, the Federal Reserve`s ratings are supported solely by the administration`s statement that «this rating is legal tender for all public and private debt» in the United States. In 1861, the first year of the Civil War, Union government spending far exceeded its limited tax revenues, and borrowing was the main instrument for financing the war. The Law of 17. July 1861[2] authorized U.S.

Secretary of the Treasury Salmon P. Chase to raise funds by issuing $50,000,000 in treasury bills, payable on demand. [3] These sight notes were paid directly to creditors and used to pay the pay of soldiers in the field. Although demand notes were issued within the legal framework of treasury bill debt, they were intended to circulate as money and were the same size as banknotes and closely resembled them in appearance. [4] In December 1861, economic conditions deteriorated and a suspension of cash payments led the government to stop buying back sight notes in the form of coins. 31 U.S.C. § 5119(b)(2) was amended by the Riegle Community Development and Regulatory Improvement Act of 1994 (Public Law 103-325) to read: «The Secretary has no obligation to reissue U.S. bank notes on redemption.» This does not change the legal tender status of U.S. bonds, nor does it require a recall of notes already in circulation. This provision means that U.S.

tickets will be cancelled and destroyed, but will not be reissued. This will ultimately lead to a reduction in the amount of these outstanding bonds. [28] However, the law did not explicitly define what legal money means. Because some currencies that could be used as «legal cash reserves» by national banking associations were not considered legal tender, Congress amended the Federal Reserve Act in 1933 to include all U.S. currencies. Coins and coins as legal tender for all purposes. U.S. notes and Federal Reserve notes have been legal tender since the 1933 gold recall. Both were used in circulation as currency in the same way. However, the issuing authority for them came from other laws. [22] U.S.

bank notes, depending on their issuance, can be exchanged directly for precious metals, as they were after the resumption of the species in 1879, which allowed federal officials to do so upon request. The difference between a U.S. note and a Federal Reserve note is that a U.S. note was a «letter of credit» and, since it was issued by the government itself and does not involve a loan or borrowing, was put into circulation directly interest-free by the Treasury. Federal Reserve notes are not backed by precious metals or the full confidence of the U.S. government. The twelve Federal Reserve banks put them into circulation under the Federal Reserve Act of 1913. A commercial bank that is part of the Federal Reserve System may receive Federal Reserve Bank notes in its district whenever it wishes. She must pay them in full, dollar for dollar, by withdrawing her account with her district bank, the Federal Reserve Bank. [22] On small U.S. banknotes, U.S. treasury and serial numbers are printed in red (unlike Federal Reserve notes, where they appear in green).

When the Treasury introduced the small format in 1928, the Federal Reserve system had existed for fifteen years and the need for U.S. notes had diminished. The notes were mainly issued in the 1928, 1953 and 1963 series in denominations of 2 and 5 US dollars.