Penny Wise

Even the United States Mint relies on a streamlined supply chain.

Thanks to Schoolhouse Rock, you probably know how a bill passes into law — but do you know how a bill passes through your wallet? The truth is, an enormous amount of logistical planning is required to maintain a steady flow of cash to your go-to ATM.

It should come as no surprise that since the United States Mint was first established some 225-odd years ago, a few major changes have been made to the country’s monetary supply chain. Here’s where all that cash comes from, and how it travels from the mint to the bank and into your back pocket.

The Origins of Paper Currency

Paper money is actually a relatively new form of currency — at least to Americans. Paper bills may have originated in China during the Tang Dynasty (A.D. 618-907), but they didn’t catch on in the U.S. until 1690, when they first made their appearance in the Massachusetts Bay Colony.

Of course, those bills didn’t have George Washington’s face on them (he wouldn’t serve as the first president of the United States until a hundred years later, from 1789-97). Instead, they took the form of a bill of credit, which represented the colony’s financial obligation to its soldiers. Fast forward nearly 200 years, and the U.S. was still using bills to fund its armed forces, with two competing currencies backing the opposing sides of the Civil War from 1861-65. It wasn’t until the National Banks Act, however, that the country began to employ a system in which banks could issue paper notes to the general public. These would later evolve into uniform national bank notes, similar to the currency we use today.

Managing Monetary Distribution

These days, currency notes and coins are all produced by the U.S. Mint, then shipped directly to 12 regional Federal Reserve Banks across the country. One-cent and five-cent coins usually arrive via tractor-trailer trucks, whereas ten-cent, quarter-dollar and half-dollar coins are transported via armored carrier.

When a local bank’s currency supply begins to dwindle, they reach out to their regional Federal Reserve Bank to refill their coffers. Conversely, if there is a surplus at a local bank and currency must be shipped back to the Federal Reserve, the same armored carriers and tractor-trailer trucks are used to transport it. Any coins that are worse for the wear (bent, worn, or otherwise damaged) are melted down and recycled into next year’s batch.

To ensure that the U.S. Mint produces enough cash per annum to meet the demands of these regional banks, national spending patterns as well as seasonal upticks in consumerism (think: Christmas shopping) are taken into account before the next year’s coins are minted. A similar supply chain exists for paper money: the Federal Reserve Banks make recommendations based on the previous year’s expenditures, and the Comptroller of Currency forwards that request to the Bureau of Engraving and Printing. The bills are then shipped out to the Federal Reserve Banks, which often pad the numbers to make sure they don’t come up short.

To keep supply ahead of demand, commercial banks rely on a complex logistical system that allows them to borrow money from the Reserve Banks, and return any surplus without incurring charges. So the next time you stop at an ATM, take a moment to appreciate the long and complex journey that those bills took from the printer to your pocket.