Q:

Under what conditions do the U.S. Federal Reserve Banks destroy money?

A:

Quick Answer

The U.S. Federal Reserve destroys money when a bill is unfit for commerce due to tears, graffiti, limpness, dirtiness and dog-earing. Special machinery at each Federal Reserve bank scans each deposited bill to determine whether it is fit for circulation.

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Full Answer

In 2010, the Fed eliminated 5.95 billion bills, while in 2009, it eliminated 6.05 billion. However, the Fed replaces each bill it destroys to maintain a stable supply of paper currency in the system. Estimates of the life of an average dollar bill vary from 18 months to 5.9 years. Around 26 percent of all replaced notes are $1 bills, since they circulate much faster than larger denominations. Larger bills tend to last longer, with the average $50 bill circulating for 12.1 years and the average $100 bill lasting between 7 and 9 years.

Congress gave the Federal Reserve the authority to destroy unfit bills in 1966. When banks discover unfit bills, they send them to special centers where high-speed currency processors chop the offending bills into confetti-like shreds. These shreds either head to a landfill or to Federal Reserve gift shops, where tourists can purchase them as souvenirs. Sometimes, the Fed speeds up its currency-destruction schedule to make way for redesigned bills.

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