No real assets back Federal Reserve notes
BY JOANNE GRANT
Mercury News Staff Writer
QA friend recently described American currency as ''Monopoly money,'' claiming its value to be based solely on faith in the government's financial stability. Is this true or false? Also, how much gold does America own?
Alan Hills
Los Gatos
AU.S. money is not Monopoly money, said Carol Eckert, an official with the Federal Reserve Bank in San Francisco. Its redemption is based on ''the full faith and credit of the U.S. government,'' she said. Because of that, it is ''absolutely valued. People believe that the U.S. will always stand behind its money.'' So far, she said, it has.
In the world economy, the U.S. dollar is considered the most reliable form of exchange, she said. However, the short answer to the question of what backs Federal Reserve notes, our money, is: nothing. ''There are no real assets, public or private, that are specifically pledged to collateralize the debt of the government,'' according to a report to Congress. ''The lack of backing, however, has no bearing on the suitability of Federal Reserve notes as currency.''
The Web site for the U.S. Department of Treasury (www.treas.gov) has a lot of information on money.
As for your second question, America owns 261.7 million ounces of gold. The number changes only a little, the 7 to a 6 perhaps, over the course of a year.
mercurycenter.com |
