New Way to Make Money Last Longer

​Physical paper currency in the U.S. will now last about 10 months longer before it wears out thanks to new and more efficient methods of sorting paper money by the Federal Reserve.

When most people think of new ways to make their money last longer in today’s challenging economy, they will often conjure images of savings accounts or other investments designed to help them hang onto what money they do have and make it go a bit farther. However, when you are the Federal Reserve Bank in charge of the nation’s actual supply of physical paper currency, the concept of making your money last longer can take on a whole new meaning.

The Federal Reserve’s 12 different regional banks are charged with the responsibility of distributing and receiving all of the country’s paper money and coins based on public demand. In 2011 alone, the Federal Reserve contracted with the Bureau of Engraving to produce 6.2 billion new Federal Reserve notes at a cost of about $623.3 million. The cost of printing new money is significant and the faster our physical currency bills wear out, the more it costs to print new bulls to replace them. Another contributing factor in the replacement of used currency has been the Fed’s ability to count and sort all the used currency that passes through their hands. If the bills are actually worn out, they are naturally discarded after the counting process, but now it appears that the Fed’s old method of sorting the bills had been causing a large number of bills to be removed from the supply even though they are not worn out yet.

The problem stems from the fact that when the Fed processes used notes they can end up in one of two ways in the stacks, face up, or face down. Prior to April 201, any notes that ended up in the stacks portrait-side-down were destroyed whether they need to be replaced or not. This resulted in an average monthly destruction rate of a whopping 21% of all $1 notes received. The regional bank staff did have the option of restacking the notes by hand to ensure they were oriented the right way in order to reduce the number of bills that were destroyed before they were fully worn out; however they no longer have to do that thanks to the new capabilities of some shiny new sorting machines.

The Federal Reserve’s new “high-speed sorting sensors” now allow the regional banks to sort, stack and count bank notes that are either portrait-side-up or portrait-side-down. The new process has already reduced the average monthly destruction rate of $1 notes to just 16%, and the destruction rate of $5, $10 and $20 notes together fell to 18%, down from 22% in the previous nine months. The Federal Reserve’s says those changes in the sorting process will now extend the average life of all U.S. bank notes by about 10 months, a length of time that has allowed the Fed to decrease its budget for new currency in 2012 by a very significant $14 million. While the Fed’s new sorting machines may not increase the amount of money in your pocket, it will make it last a bit longer before you have to spend it.