Currency Quality and Changes in the Behavior of Depository Institutions

31 Pages Posted: 9 Dec 2012

See all articles by Hubert Janicki

Hubert Janicki

U.S. Census Bureau

Nashat Moin

Independent

Andrea Waddle

Federal Reserve Banks - Federal Reserve Bank of Richmond

Alexander L. Wolman

Federal Reserve Bank of Richmond

Date Written: 2007

Abstract

Federal Reserve Banks distribute currency to — and accept deposits from — depository institutions. Currency that the Federal Reserve distributes is either newly printed by the Bureau of Engraving and Printing, or previously deposited by banks. Currency that banks deposit with the Fed is sorted for fitness, and notes which are unfit are destroyed. The Fed is in the midst of implementing changes to its policy for deposits and withdrawals, and those changes are expected to cause banks to deposit less currency with the Fed. We describe a model for analyzing the effects of reduced deposit rates on the quality of currency in circulation, and use the model to study changes in shred policy that would reverse any incipient changes in currency quality.

Suggested Citation

Janicki, Hubert and Moin, Nashat and Waddle, Andrea and Wolman, Alexander L., Currency Quality and Changes in the Behavior of Depository Institutions (2007). FRB Richmond Economic Quarterly, vol. 93, no. 4, Fall 2007, pp. 361-391. Available at SSRN: https://ssrn.com/abstract=2186640

Hubert Janicki

U.S. Census Bureau

4600 Silver Hill Road
Washington, DC 20233
United States

Nashat Moin

Independent

Andrea Waddle

Federal Reserve Banks - Federal Reserve Bank of Richmond

P.O. Box 27622
Richmond, VA 23261
United States

Alexander L. Wolman (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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