By Laura Taylor, Public Affairs Staff
Cash. Moolah. Dough. Currency. Money.
These terms probably elicit images of crisp paper bills or stacks of brand-new bank notes, right?
But what happens to old or worn out money? The bills that are torn, covered in graffiti or at the end of their life cycle — what happens to those?
Generally speaking, U.S. paper currency that’s no longer fit for circulation is removed from circulation by the Federal Reserve System. However, different fates can befall a bill, and there are different processes for handling money depending on what happened to it.
If you’re questioning whether there’s any bang left in your buck, it’s important to know what kind of damage you’re dealing with.
Read on for definitions and what to do with old money.
The Federal Reserve System is responsible for placing paper bills into circulation. This happens via 28 cash offices—from Boston to Dallas to San Francisco. The St. Louis Fed’s currency operations are housed at our headquarters and our Memphis Branch.
Just as the Fed is responsible for placing cash into circulation, it takes unfit currency out of circulation.
The definition of unfit currency, from the Federal Reserve System’s Cash Product Office, is a “note that is not suitable for further circulation because of its physical condition” due to being:
“About 85% of the currency that gets deposited with us is fit,” says a representative with our currency team, serving the Eighth Federal Reserve District. “Torn, worn, limp, dirty, defaced—we call those defects. That’s what our machines look for.”
After a Federal Reserve bank receives cash deposits from commercial banks, highly trained employees can detect unfit cash in two ways:
“For example, if we’re able to determine that the note is torn, depending on to what degree, our machines can determine whether that money can come out of circulation. The machine does the largest percentage of that,” explains our currency expert.
“If the machines can’t make a clear determination of how dirty, limp worn or defaced it is, or if there’s something suspect about the note that the machine cannot ascertain, then it is evaluated by a person,” he says.
The Fed’s Cash Product Office guide (PDF) gets detailed about what constitutes “unfit,” down to the reflectivity of a note.
If you don’t happen to have a densitometer handy, the Cash Product Office offers this advice: When in doubt, you may seek to exchange a worn note at your local commercial bank.
As long as more than half of the original note is clearly present—and it doesn’t take special examination to determine the note’s value—a commercial bank can then include the note in its deposit to the Federal Reserve.
Once an unfit note is detected, it is separated from normal circulation.
Unfit notes used to be burned to prevent their re-entry into circulation. Now, unfit bills arriving at the St. Louis Fed’s facility downtown are shredded and recycled or turned into compost.
In 2018, the St. Louis Fed removed 154 million notes from circulation.
Mutilated currency, meanwhile, refers to a note that has been damaged so badly that 50% or less of it remains, or its condition is such that its value is questionable. It may be missing a watermark or security features, like a thread or ribbon.
Currency mutilation can occur from fire, misuse or even deterioration from burying money.
The Federal Reserve does not accept deposits of mutilated currency from banks. In this case, special examination is required by pros at the Bureau of Engraving and Printing (BEP) before any exchange is made.
“The BEP will evaluate the note,” he explains. “They have special tools to examine the authenticity and assess the full value of the note. After they do that, they can issue a check back to the consumer.”
The BEP is part of the U.S. Treasury Department; disposal of mutilated money is handled through this agency. The Treasury says that every year, it handles approximately 30,000 claims and redeems mutilated currency valued at more than $30 million.
In some cases, money may be exposed to contaminants. The definition of contaminated currency is a note damaged by, or exposed to, a contaminant to the extent that it cannot be processed under normal operating procedures—or may pose a health or safety risk.
Paper bills can become contaminated due to:
Our currency representative remarks that floods, for example, can lead to unknown contaminants being introduced to floodwater, which could contaminate currency and call for special handling.
If you believe that your currency is contaminated, you may be able to deposit it at a commercial bank.
Our currency expert advises that you provide as much information as possible about what happened to the note(s). Consult with your local commercial bank branch for further instructions.
The Federal Reserve has detailed guidelines for depository institutions on how to handle and package contaminated currency.
Due to potential health / safety risks, contaminated currency is not recycled. Our currency representative assures us it is disposed of safely.
Made of 75% cotton and 25% linen, U.S. paper notes are designed to withstand a lot of use. How long a piece of money lasts in circulation often depends on the value of the note.
Take a look at the average lifespan of currency in the U.S.
|Denomination||Estimated Lifespan||How Many are in Circulation?|
|$1||5.8 years||12.4 billion|
|$5||5.5 years||3.1 billion|
|$10||4.5 years||2 billion|
|$20||7.9 years||9.4 billion|
|$50||8.5 years||1.8 billion|
|$100||15 years||13.4 billion|
|Notes: Paper money estimated lifespan as of December 2013. Estimated lifespan of $100 denomination is as of December 2012; the Federal Reserve issued a redesigned $100 note in October 2013 and does not yet have sufficient data to provide estimated note life for 2013. Yearly circulation volume as of Dec. 31, 2018.|
|Sources: U.S. Currency Education Program, Infographic – Life Cycle of a Federal Reserve Note; and FRED release table, Volume of Currency in Circulation by Denomination.|
Notice the varying years for each denomination of currency. Why is the average lifespan of a $5 or $10 bill so much shorter than that of a $100 bill?
According to the Federal Reserve Board of Governors, “larger denominations such as $100 notes are often used as a store of value, which means they pass between users less frequently than lower-denominations such as $5 notes, which are more often used for transactions.”
Access to clean, safe cash is vital during hurricanes, floods, tornadoes—and even after tragedies like the attacks on Sept. 11, 2001.
After Hurricane Katrina, power outages that affected a wide area of the Gulf Coast meant no access to ATMs and no ability to use credit cards or process checks. The importance of cash is vital in situations like these. Having Federal Reserve System cash offices across the country helps money move to necessary places as quickly as possible.
According to Karl Ashman, an executive vice president at the St. Louis Fed, our Memphis Branch played an important role post-Katrina.
“The fact that we were able to provide currency, we kept the economy flowing so that even in a dire situation, people could still get the basic necessities of life,” Ashman said.