The Federal Reserve System has a unique structure. Rather than being a single institution, as most central banks are, it’s made up of:
12 Federal Reserve banks in major cities across the country, with 25 additional branches in other cities
A 7-member board of governors, led by a chairman
A 12-member Federal Open Market Committee (FOMC)
Individual banks that meet the Fed’s financial standards, with membership mandatory for national banks and elective for state banks
The Fed’s primary responsibility is managing money and interest rates to keep the economy healthy. The approach it takes to this task is described as its monetary policy.
In addition, the Fed acts as the clearinghouse for all the checks that pass through the banking system, manages the circulation of currency, regulates the activities of member banks, acts as a lender of last resort for banks facing insolvency, and handles the day-to-day banking business of the U.S. government.
Many of these tasks fall to regional banks, whose employees also collect and distribute data on economic activity in their districts for the Fed to use in making its policy decisions.
Old money, new money
As old paper money and coins wear out or become damaged, the Federal Reserve banks collect and return the old money to the U.S. Treasury. Paper money is shredded and burned into mulch, and coins are sent back to the U.S. Mint for melting and recasting.
When the Treasury produces new paper money and coins as replacements, they ship the currency to the 12 Federal Reserve banks, which then put the cash into circulation.
