Introduction to Finance

Coin and Currency 
Even though the movement toward a cashless society continues, 
the United States remains highly dependent on currency and coin to conduct transactions. The 
Fed is responsible for ensuring that the economy has an adequate supply of cash to meet the 
public’s demand. Currency and coin are put into or retired from circulation by the Reserve 
Banks, which use depository institutions for this purpose. Virtually all currency in circulation 
is in the form of Federal Reserve notes. These notes are printed by the Bureau of Engraving 
and Printing of the U.S. Treasury.
Check Clearance and Collection 
One of the Fed’s important contributions to the 
smooth fl ow of fi nancial interchange is to facilitate the clearance and collection of checks of 
The Fed and the Consumer
The Fed aff ects personal fi nance in several ways. First, the Fed 
controls the money supply. Actions that severely restrict the sup-
ply of money may lead to an economic recession. Too rapid a 
growth in the money supply may result in infl ation and a decrease 
in purchasing power. Should the Fed act to slow down or reduce 
the growth rate of the money supply, there will be growing con-
straints on the ability of banks to lend as their excess reserves 
decline. This may result in higher loan rates, as loanable funds 
become scarcer. This could help bank savers, however, as banks 
and other depository institutions may raise the interest they pay 
on saving accounts and CDs to attract more funds that they will 
later lend to others.
The Fed acts in other ways to maintain people’s trust and 
confi dence in the banking system. As this chapter discusses, the 
Fed has supervisory power over many banks to ensure they have 
adequate capital and reserves and are following regulations. The 
Fed’s Regulation Z requires lenders to tell borrowers the annual 
percentage rate on the loans they receive. The Fed clears checks 
by transporting them between banking centers and by debiting and 
crediting bank balances with the Fed.