For most of the 21st century, many groups have advocated for eliminating the $1 bill, while others provide a counterpoint to maintain the status quo. While the discussion of eliminating the note has economic and policy concerns that lawmakers must address, how would the U.S. government implement the policy?
The Federal Reserve Act of 1918 gives the Federal Reserve the authority to procure, distribute, and manage the nation’s currency supply. They must procure the paper money from the Treasury Department, but the Federal Reserve is required to tell Treasury how much money they need to print. But does the Fed determine which notes to print?
The law (12 U.S. Code § 418) says that the Treasury Department prints notes in “the denominations of $1, $2, $5, $10, $20, $50, $100, $500, $1,000, $5,000, $10,000 as may be required to supply the Federal Reserve banks.” The statement suggests that the Federal Reserve banks set the printing requirements. Does this mean that the Federal Reserve banks can tell Treasury that it no longer requires them to print the $1 note?Neither entity can make this decision alone. On July 14, 1969, history teaches us that the Treasury Department and the Federal Reserve announced they would discontinue issuing $500 and higher notes “immediately due to lack of use.” Even though the Bureau of Engraving and Printing last printed these notes in 1945, the Nixon Administration felt that removing them from circulation would help reduce crime. The Federal Reserve withdrew the notes as customers deposited them in banks.
Although the denominations remain part of the law, the Federal Reserve Act gives the Federal Reserve latitude to manage the currency supply as it deems necessary. It was a policy enacted by the Treasury and Federal Reserve in tandem.
The agreement was not as easy as the history books want us to believe. In 1969, William McChesney “Bill” Martin was the Federal Reserve Chair. Martin was appointed by Harry S. Truman in 1951, fiercely guarded the Federal Reserve’s independence, and was known to push back against presidential policies with a minimalist approach to managing market factors. In the 1960s, Martin ran afoul of Lyndon Johnson and Richard Nixon for not doing more to help prevent a recession.
Following a meeting with Nixon in October 1969 about what his administration saw as an impending recession, Nixon announced that he would replace Martin when the Federal Reserve chair’s term expired on January 31, 1970.
It was not the first time the Federal Reserve changed United State currency without legislation. Since the formation of the Federal Reserve, the Federal Reserve authorized the printing of gold certificates, silver certificates, Legal Tender notes, Federal Reserve Banknotes, and the ongoing Federal Reserve Notes.
Before the formation of the Federal Reserve, the Treasury Department determined what currency to print and its design. Treasury Secretary Franklin MacVeagh proposed reducing the size of the currency paper in 1909. After years of study and discussion, Secretary Andrew Mellon approved new smaller designs issued in 1929. The change did not require new legislation.
Based on history, Treasury Secretary Janet Yellen and Chairman of the Federal Reserve Jerome Powell can decide to withdraw the $1 Federal Reserve Note from circulation. Powell can instruct the Federal Reserve Banks to stop issuing $1 bills and use the $1 coin instead. When the notes return to the Federal Reserve System, they can withdraw the notes and destroy them as they do with old currency.
Yellen can refuse by saying that she is following her boss’s policies, the President of the United States. But the Federal Reserve is an independent agency and does not have to ask for permission. By law, if the Federal Reserve does not order the printing of new $1 bills, the Bureau of Engraving and Printing will not print new currency.
Politics may prevent Yellen and Powell from making this decision, but they can do it and allow the United States to join the rest of the civilized world that no longer carries its unit currency in paper form.