As part of the ongoing commitment to promote efficient FedCash Services delivery, the Federal Reserve Banks removed the requirement to face notes (i.e., facing notes portrait side forward) in the $1-$20 denominations a little over a year ago. Driving the policy change were advancements in technology and industry practices, including the evolution of note handling, particularly for lower-denomination notes.
The policy change led to a reduction in premature destruction of lower-denomination notes, reducing the Federal Reserve’s need for additional new currency, which has saved the Federal Reserve, and in turn taxpayers, millions in new currency print costs. Beyond the print cost savings, the policy change also resulted in some operational efficiencies for depository institutions.
The Federal Reserve Banks distribute newly printed currency each year to replace soiled and unfit currency notes that are destroyed and to accommodate growth in demand for U.S. currency. New currency notes are printed by the Bureau of Engraving and Printing (BEP) in its Washington, D.C. and Ft. Worth, Texas, manufacturing plants. Each year, the BEP prints over six billion notes to meet worldwide demand for U.S. currency. New notes are distributed through Reserve Banks throughout the United States when inventories of fit notes alone cannot meet demand. The Federal Reserve fills orders with fit notes, first, in order to minimize the printing costs for new currency.1
Prior to the policy change, unfaced notes deposited to the Federal Reserve Banks required manual facing or were systematically identified as unfit and subsequently shredded, leading to printing of new notes to replace this currency. As a result of technology advancements, however, the Federal Reserve Banks are no longer shredding notes that are unfaced in the $1 to $20 range of denominations. By reducing the number of notes shredded prematurely, the need to replace this currency is eliminated. As such, last year the BEP was able to avoid approximately $20 million in print costs for new notes that would have been deemed unfit prior to the note facing policy change. The Federal Reserve anticipates continued cost avoidance due to premature destruction of misfaced notes.
In addition, because these advancements in technology make it possible to accept unfaced lower-denomination notes, the Federal Reserve Banks determined as part of their periodic review and update of policies and procedures that depository institutions no longer have to face all notes portrait side forward when preparing a deposit of $1-$20 denominations – a step in a process known as conditioning. Eliminating the notes facing conditioning requirement for the lower-denomination notes helps to streamline depository institutions’ operational processes for notes handling, providing the opportunity to reduce resources dedicated to note handling for lower-denomination notes.
“We are very pleased that the objectives of the policy changes — improved efficiences and cost savings — have been achieved."
Barbara Bennett, Vice President and Senior Policy & Strategy Officer of the Federal Reserve System Cash Product Office noted that for many years, the Federal Reserve Banks have influenced the quality of circulating currency by setting high standards for the used currency they return to circulation after fitness sorting. “This policy change does not affect those standards, nor does it change the Reserve Banks’ role in maintaining an efficient and effective cash supply chain,” Bennett commented. By continually reviewing and refining policies to keep pace with changing industry practices and advancements in technology, as well as to ensure that the overall quality of currency in circulation is fit for commerce, the Reserve Banks seek to meet the cash needs of depository institutions and the general public.
Resources to support you
The Operating Circular 2 (OC 2) (PDF) and the Cash Services Manual of Procedures (CSMOP) (PDF), in addition to our Deposit Visual Reference Guide, were updated accordingly. If you have any questions, please contact your local FedCash Services representative. If you have not already done so, we strongly encourage you and other key personnel to complete the FedCash Services Depository Institutions Registration to receive important updates about these and other changes from the Federal Reserve Banks.
1 Contrary to this general practice, Reserve Banks provide new currency on demand for special situations where new currency is required and during specified weeks to help depository institutions meet their customers’ demand during the winter holidays.
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