We’re In The Money Essay, Research Paper

We?re In The Money

A frequently asked question by a customer is ?Can you break a hundred dollar bill?? If this request has been granted, why do the cashiers take the bill and turn it into a biology experiment? Between pouring a liquid on the note and/or holding it up to the light to check for authenticity, is our currency system in danger? As of the beginning of 1996, the Chairman of the Federal Reserve and the Secretary of the United States Treasury, prove their economic wizardry by making the new one hundred dollar bill nearly impossible to counterfeit in attempt to protect our economy. This is just the first step in improving our currency system.

Counterfeiting U.S. currency is an illegal practice that has has been around for years and, unfortunately,is getting worse. ?Last year, …the Secret Service cooperated with the Italian authorities? seizure of $43.8 million in counterfeit U.S. currency, Germany?s capture of more than $19 million in counterfeit cash, and the Canadian authorities; seizure of than $129 million in counterfeit U.S. currency.? (Gomez, Bertha. ?Officials Say..?) In a small town north of Chicago, two high school seniors were arrested for the use of counterfeit bills. With the use of the internet and a color printer, these two teenagers were able to create and pass their counterfeit twenty dollar bills through the high school cafeteria but were later arrest by police after trying to use their money at a local Taco Bell. If teenagers are finding ways to counterfeit money, that should tell someone that we need to do something to protect our economy for the future.

In attempt to enhance our currency system, the one hundred dollar bill was completely redesigned last year and released at the beginning of this year. This new bill contains a security thread, a watermark, a larger portrait, varriable-color ink and infrared fibers. It is called the 1996 series. Next year the fifty dollar bill will change and so forth. At first, economist talked about recalling all of US currency, but later this idea was ruled out o keep a smooth transition and to honor the new bills at current face value.

If our economy is at its strongest, who paid for the creation of the series 1996? The Federal Reserve, under the direction of Alan Greenspan, paid for this currency improvement. When the fed decides the economy is growing at a too quick a pace, or inflation is getting out of hand, it can take action to slow spending and decrease the money supply. The fed does this by selling securities on the open market. This in turn, reduces bank?s reserves and forces the interest rate to rise so the bank can afford to make loans. People seeing these rises in rate will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the fed will effect all aspects of business, from the price level to interest rates on credit cards. In a recent article from the Wall Street Journal, criticizes the fed?s action in raising the interest rates, and complains that the fed has fallen behind in it?s job. It discusses the plan for a Neutral policy and what the fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today?s standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but the fed will probably continue to raise interest rates. (?Fed Moves Too…? Wall Street Journal)

Rise and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. Directly after the Fed?s actions, the stock market is immediately effected.

Unfortunately, this new bill is not completely counterfeit proof. According to an article from…… by Ron Moreau and Russell Watson, Two men, in a Thai resort of Pattaya, use counterfeit bills (series 1996) in a photo shop. The shop owner did examine the bills but did not realize they were fake. High Quality counterfeit bills are thought to be produced in several countries; Iran, Syria and Russia are frequently named as suspected sources.

The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of a real money available be willingly held. Because this is such a delicate system this equilibrium is never exactly met, and the Fed?s job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it.

It seems that no matter what the United States Treasury creates for a currency system, as long as it is an inanimate object, someone will try to copy it. But, what if our currency system was strictly based on a credit? This will be the United States currency of the future. Our world has advanced so far with the aid of the computer. Ten years ago, computers were for only a weak version of typing. We have come so far from the past. Technology will improve in the years to come. The money in our wallets is just a special type of paper with a special type of ink. It does not back gold like it use to. In the future, we will have two cards in our wallet. A credit card, if we so choose to own one, and a currency card. Our treasury and federal reserve will design a feasible system where paper money is something of the past.

Work Cite

?Fed Moved Too Slow On Increasing Rates.? Wall Street Journal 11 April 1994.

?Who Controls The Fed?.? Investors Business Daily 19 August 1996

Gomez, Berta ?U.S. Officials Say Currency Counterfeiting Remains Small.? USIA Staff Writer (1996) WWW Internet Access.

Moreau, Ron and Russell Watson. The Hard-Up North Koreans are suspected of making nearly perfectly fakes of U.S. $100 bills.