Emergency Paper Used in Depression Era Currency

Emergency Paper Used in Depression

This article was originally printed in Numismatic News.
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There are probably no small-size notes that attract less attention than small-size Federal Reserve Bank Notes. Because the name is so similar, these are often confused with regular Federal Reserve Notes.

But those in the know are aware that small-size Federal Reserve Bank Notes are not only in short supply but in some cases are virtually impossible to find at any price. That makes the small-size Federal Reserve Bank Note a collection that is challenging and one that is only likely to become even more challenging in the future.

One of the historic problems for small-size as well as large-size Federal Reserve Bank Notes has been that they were easily overlooked being similar to other issues. That, of course, was the intent at the time of issue. The large-size note was an emergency issue of World War I and the small-size version was an emergency issue of the Great Depression.

In neither case did authorities want to panic financial markets when they were issued, so it was the continuity that was stressed rather than the differences.

Some might find that surprising but in fact in the emergency of the Great Depression, the Federal Reserve Bank Notes were rushed into production using the National Bank Note’s stock design.

“National Currency” appears at the top center above the portraits just as it does on National Bank Notes.

The Great Depression hit after the stock market crash in October 1929. This tragic economic event occurred just months after the July 1929 introduction of small-size currency, which is the current size. Large-size notes were used 1861-1929.

The change to small-size notes involved many things beyond a simple size change. The designs with the exception for wording and seal and serial number color were made more uniform where in the past designs had had far greater diversity.

There was also a decision to change the role of various notes in circulation. The role of the Federal Reserve Note would be expanded while Gold Certificates were basically to be unchanged. National Bank Notes were being phased out slowly and the role of Silver Certificates and United States Notes was being reduced.

This plan was no match for the financial emergency.

In the case of the Federal Reserve Bank Note, had it not been for the Great Depression there is little doubt that there never would have been a small-size Federal Reserve Bank Note.

When Franklin Roosevelt became President march 4, 1933, the reported unemployment was around 25 percent, and 50 percent of the mortgages were behind in their payments.

By any definition it was an economic emergency and with a new administration coming to office everyone was trying to determine how to solve the crisis or at least lessen it.

Most governors had declared bank holidays and closed the banks within their borders. A national bank holiday was declared March 5, a day after Roosevelt took office.

Naturally, when people are denied access to their money, they want it all the more. Getting cash into banking channels and opening the banks as soon as possible became the top priority.

Officials were trying desperately to figure out a way to put more dollars into circulation but they seemed blocked at every turn. There was a legal limit on the amount of United States Notes and Gold and Silver Certificates that could be issued. Even Federal Reserve Notes had a “gold clause,” which presented a problem, and National Bank Notes were issued by local banks. There was really no good answer a national crisis to be found among the existing notes in circulation and that is when someone remembered Federal Reserve Bank Notes.

On March 9, 1933, emergency legislation was passed by to reduce the collateral requirements on a new issue of Federal Reserve Bank Notes. It was a desperate measure probably prompted by the inability to find any other type of note that would work in the situation. It appears it came probably right after discovery that United States Notes were limited by law as $1 United States Notes were in production and $10 and $20 denominations had at least been considered based on samples shown at the 1933 Chicago World’s Fair. Legal limitations, however, would prevent that solution from having much impact and the new Federal Reserve Bank Notes were rushed into production.

Speed was essential and that did not allow for special designs or normal procedures. Instead the Bureau of Engraving and Printing took existing National Bank Note plates and did some creative and hurried modifications. The first change was use the name of each of the Federal Reserve District Banks as issuer rather than National Banks.. That was followed with the addition of “Governor” for “President” as was used on National Bank Notes. In most districts the bank cashier’s facsimile signature was used but for New York it was the “Deputy Governor,” for Chicago the “Asst. Deputy Governor” and for St. Louis “Controller.”

There were also required changes in wording. The seals were brown but in the style of Federal Reserve Notes with the same being true of the serial numbers. The serial number was expanded to eight digits from six on National Bank Notes.

The resulting notes might not have been perfect but considering the challenge it was a first-rate cut-and-paste masterpiece with the first shipment of Federal Reserve Notes on its way to the New York Federal Reserve Bank 24 hours after the order was received. On the morning of March 11, 1933, the New York Federal Reserve Bank had its first notes, a speed record which will probably never be approached much less broken.

As it turned out, the emergency was not as serious as feared. The strong actions and reassuring words of Franklin D. Roosevelt on the radio seemed to calm at least some of the fears and while the initial order of Federal Reserve Bank Notes was for $2 billion only $911,700,000 was actually printed. Less than a year later when the actual delivery of the final notes took place, the amount delivered stood at just $460,900,000 and the total actually released was just $284,903,250.

But that is the paradox of fear in a financial crisis. Once people know they can get all of their money, they tend to take out less than that.

The issued total was smaller than it might have been, and this has an impact on available supplies today but what is as important is that there have been few worse times in U.S. history when it comes to the ability of many to save new notes when they were issued. It was simply a matter of finances and with denominations starting at $5, any Federal Reserve Bank Note represented a significant investment just in face value at a time when few could invest in anything. Naturally, the higher the denomination the greater the odds against any being saved. It should be remember that if you were lucky enough to have a job at all, many Americans of the time earned 25 cents to 50 cents an hour.

In fact, the initial release pattern suggested there were very few upper denominations to save even if someone had available funds. The $5 had the highest numbers released while the $50 had a release of just 14 percent along with 21 percent of the $100 notes and just to make matters even more interesting the notes were retired very quickly.

As it turned out with many notes still sitting in vaults, the Federal Reserve Bank Note would have potentially been even tougher than they are today but the Japanese attack on Pearl Harbor on Dec. 7, 1941, and the entry of the country into World War II represented another crisis and that saw the release of the remaining stocks of Federal Reserve Bank Notes just under a decade after they were printed. Once again the pattern was of brief circulation and once again they were far from perfect times to expect significant saving of examples and that has had a negative impact on supplies today.

The collector today is facing a serious problem when it comes to assembling a collection especially in upper grades. A complete collection would require 49 notes as not every district issued every denomination with Boston, Philadelphia, Richmond, St. Louis and Atlanta each issuing only three of five denominations.

The good news is that type notes are available with a CU-63 $5 from an available district being just over $100 while a CU-63 $10 would be perhaps $150. A CU-63 $20 is the same while a CU-63 $50 is $250 as is a CU-64 $100.

These prices are for the most common issues. If you don’t mind well circulated examples, they are considerably less and easily affordable.

While type notes might be available, a more complete collection is another matter especially in CU where it is very possible that a couple of notes do not even exist in top grade. The key is the San Francisco $5.

Even upper circulated grades are a problem with the San Francisco $5 with an XF currently priced at $10,000 but even at that price there is question as to how many exist. The Lyn Knight 2003 CPMX sale offered a San Francisco $5, but it was a fine while the same sale had CU examples from Atlanta, Chicago and Dallas. While not quite as tough, the $5 from St. Louis is another major problem and that explains their CU-63 listing of $5,500.

In theory the $10 and $20 are more available thanks in part to the fact that the $5 had a nearly total retirement when they were first released. The $10 and $20 are not, however, readily available and specific districts can be real problems such as the $10 and $20 from both Dallas and San Francisco. The $50 and $100 are even tougher especially from Dallas. To make a serious effort at a complete collection in CU the collector will need not only the funds but also a great deal of patience as any number of denominations from certain districts are rarely offered for sale.

As difficult as the regular notes are the star replacement notes are much more of a challenge. It is natural that stars would be tougher but we sometimes forget just how tough they can be as the highest printing for a small-size Federal Reserve Bank Note star replacement note was just 84,000 pieces, but the average was closer to 24,000. To those low totals must be added other considerations such as the low saving for any note at the time and that leaves us with serious doubt as to whether a complete star replacement collection of Federal Reserve Bank Notes is possible in any grade.

The problems with stars start in the $5 where the St. Louis and San Francisco stars are unknown in any grade. In fact, the $5 is actually a tough denomination for stars with a CU-63 from an available district around $2,000 with an XF at about $500 and attempting to find XF examples is a much more realistic goal than attempting to find many CU stars.

By comparison the $10 stars are actually available and that is true of type examples where an XF might be $700 with a CU-63 at $2,400. There are, however, some tougher districts such as Dallas and Boston and in those cases the collector might well have to settle for any note offered with the hope of perhaps one day being able to trade up in grade.

The $20 ranks second in terms of total number of stars known to exist and that makes an XF possible for $500 and up but a CU-63 is another matter as they are very scarce with a starting price of at least $1,750 and possibly more depending on the district. Once again despite a reasonable number of $20 stars being reported finding certain districts can be a real problem. The Minneapolis district has probably fewer than five known XF examples and the known Chicago stars tend to all be in lower grades. Add to those districts the fact that the Dallas and San Francisco $20 stars are extremely rare and it is suddenly apparent that while $20 stars may be available a complete set by district is almost impossible even in XF.

The $50 is an interesting denomination as five districts did not even issue $50 Federal Reserve Bank Notes. Of those that did the Dallas star is currently unknown and while it can never be ruled out entirely as existing the fact is that it is certainly a note that cannot be expected to be found for a collection. Other districts are also virtually impossible such as Chicago, San Francisco and Minneapolis and that leaves just New York, Cleveland and Kansas City as the three possible $50 stars.

In upper grades your choices probably decline even further as in $50 and $100 the known stars in upper grades are basically all from Kansas City. In $50 a Kansas City CU-63 star lists at about $2,500 but that price is always under pressure from those simply wanting a high grade $50 star and it is worth remembering that while we talk about a $50 star from Kansas City being available the total known in all grades combined is still not high and with any increase in demand they could all disappear quickly.

Much the same is true in the case of $100 stars as the known population of Kansas City star $100 Federal Reserve Bank Notes is just under 40. That makes Kansas City by far the most available district at a price of under $750 in XF and roughly $1,150 in CU-63 but as with the $50 the demand can very easily overwhelm the supply as no other district is even at a dozen known $100 stars putting all the demand from Federal Reserve Bank Note collectors as well as type collectors squarely on the supply of Kansas City notes. In the case of other districts there are few that can be expected to be seen in the market with any regularity.

Certainly the lack of supplies limits collecting possibilities but while a complete set is not possible collectors can for example acquire a star of each denomination or notes from each district.

While difficult, the potential rewards of a small-size Federal Reserve Bank Note collection must also be considered. The Federal Reserve Bank Note was a historical emergency issue and that makes it particularly fascinating as a reflection of very difficult times for the United States. The small numbers remaining today also make the collection one where every note has to be considered an excellent value. For years the small-size Federal Reserve Bank Note was largely overlooked sometimes because it was confused with Federal Reserve or National Bank Notes and other times simply because like other small-size notes they were assumed to be available.

In recent years the awareness of Federal Reserve Bank Notes on the part of many has increased significantly but there are no additional quantities of notes to help supply any increased demand. This situation has produced rising prices, which as the years go by tend to produce greater demand as some realize that if they want a Federal Reserve Bank Note collection or even type notes for their collection they need to act quickly.

In the case especially of star replacement notes and upper denominations that has created a situation where record prices are becoming increasingly the rule and where there are sometimes a number of potential buyers for virtually every note. It is clearly a significant change for Federal Reserve Bank Notes, but it is also one that is not likely to change as small-size Federal Reserve Bank Notes have been discovered and there is now a real demand for what were at one time perhaps the least appreciated and understood of all small-size notes.