<p>The referenced link from money.stackexchange.com with the top accepted answer is incorrect.  It states: </p>

<p>"Coins are assets because its the actual money. Notes are liabilities because the Federal Reserve is obligated to pay money on these notes."  </p>

<p>The Federal reserve is not obligated to pay money on the monetary base it creates and there is no objective financial difference between coins being real money and federal reserve notes being real money.  They are both real money for all practical purposes.</p>

<p>Let me take a stab at the initial question.  </p>

<p>Yes, Federal Reserve Notes are a liability to the Federal Reserve (as are electronic federal reserve dollars).  It doesn't really need to be done like this.  It's actually a holdover from when the US was on a partial gold standard.  The central bank would hold gold deposits and in turn issue notes (dollar bills) which were redemption slips for those gold deposits.  Because the central bank had to redeem dollar bills with gold, this is why it was classified as a liability.  The US went off the gold standard twice (once under FDR to the public and later under Nixon for foriegners).  When this happened, dollars were no longer true liabilities.  But this history is why you see federal reserve notes (and federal reserve deposits which are electronic dollars) still classified as liabilities.  And coinage is considered an asset to the Fed which they purchase from the treasury.  You will still see some gold as an asset on the Fed balancesheet as a holdover from these times.</p>

<p>The Federal Reserve does not have a monopoly on creating the monetary base.  The treasury can also create base money by creating coins and US Notes (which are not Federal Reserve notes). </p>

<p>The treasury does not consider the coin as a liability because it truly is not one (just as the dollar bill in a modern sense is not one to the Fed). </p>

<p>Looking at a balance sheet, you could almost argue that base money is a liability because it appears to be balanced by assets on the balance sheet.  But this is not the case.  It is an accounting illusion. If the Fed were to withdraw all their "liabilities" there wouldn't be any money in the system (outside of coins and notes of course).</p>

<p>The reference to the obligation on Federal Reserve Notes is an antiquated holdover from the gold standard era.  It is quite meaningless now.  The Fed will exchange if demanded electronic dollars for paper dollars, vice versa or will buy/sell coinage as required by the banks.  </p>

<p>Coinage is not an obligation to the treasury, neither are US notes.  The treasury will certainly repair damaged coins, but that is not to say that the coins themselves are true liabilities or obligations.</p>

CC BY-SA 3.0
2016-01-13T01:16:28.500Z
Since both notes and coins distributed to the public can be redeemed to pay taxes they seem to act very much like a liability of the state (either directly in the case of coins or indirectly in the case of bills). I'm not disputing some accounting or legal arcana could make them different in the eyes of those professions, but in the eyes of economics how are notes a liability like an airline's frequent flyer miles or a store's gift cards but coins are somehow not?
BKay
CC BY-SA 3.0
2016-01-13T01:52:28.550Z
The tax would be the liability actually.   The only reason reserve notes accounted for a liability is because they used to be one with the gold standard.  Now they are not.  Say we are in the gold standard...and I mine 10k worth of gold.  Asset or liability?  If I counterfeit 10k in green-backs...asset or liability?  Money is an asset.  Redeemable money, like bank deposits (M1-M2) as well as gold certificates were correctly considered liabilities though.  Coinage doesn't have a history of redemption in contrast.
user2662680
CC BY-SA 3.0
2016-01-13T01:54:00.553Z
I don't see how a tax can be a liability of the government because that would make them an asset of the people who owe them the taxes.
BKay
CC BY-SA 3.0
2016-01-13T02:01:16.390Z
The tax is a liability to the public, not the government.  If I have a 4k property tax bill at the end of the year that is my liability, and not the governments.  Taxes are an asset to the government.  Money is an asset to those who own it.
user2662680
CC BY-SA 3.0
2016-01-14T23:28:15.373Z
@user2662680 So the requirement on the Federal Reserve to have assets to backup the notes is really no longer necessary then? Since the notes are no longer true liabilities, they don't need an asset to balance it out? Is that correct or have I missed something...?
user3911038
CC BY-SA 3.0
2016-01-16T00:01:47.577Z
The Fed considers Federal Reserve notes liabilities instead of assets.  This is incorrect because they are not redeemable.  The Fed easily fixes their books by understating equity/capital.  With proper accounting new MB would increase capital and assets.  And when investments are purchased, this would just change assets around.   There is no reason the Fed has to consider MB a liability or that it has to be balanced.  Usually the Fed buys debt with new MB because they believe this prevents inflation but this is not true because of the maturity differences.
user2662680
CC BY-SA 4.0
2018-09-23T23:50:05.157Z
I like where some of this answer is trying to go, but it's missing an important point.  The Fed issues notes to buy things.   After the Fed buys a bond, the value of that bond is listed on the asset side of the balance sheet.  That asset *must* be balanced, and it is -- on the liability side, by the notes that the Fed issued to buy it.  This is no illusion, and the liability side can't be deprecated -- it's basic accounting.
stevegt
CC BY-SA 4.0
2022-09-13T19:38:18.833Z
@user253751  A currency issuer is a business. The major issuers today are stockholder corporations; this includes both the Fed and ECB.  Governments charter these corporations, sell bonds in the resulting currency in order to finance government operations, and then pay the interest on those bonds from tax revenue. Issuers who forget they are a business (or are manipulated by their host government) are considered higher risk by traders, who bid lower for those bonds, driving up interest rates, and who ask for more currency units in foreign exchange, driving up inflation.
stevegt
CC BY-SA 4.0
2022-12-07T07:49:53.600Z
@user253751  "The major issuers today are stockholder corporations".  A stockholder corporation is a business.  Take the time to read up on how modern money works from authoritative sources instead of hanging out here -- Federal Reserve web sites would be a good place to start.
stevegt
CC BY-SA 3.0
2016-01-12T23:10:11.617Z
2016-01-12T23:10:11.617Z
user2662680
<p>More of a two part question. In the current system (Fiat only currency), why is a Federal Reserve Note booked as a liability (on the Fed balance sheet), but a Coin is not booked as a liability by the Treasury? What is the difference? What liability does the Fed have since it doesn't actually have to redeem the notes for anything (other than another note?)</p>

<p>Also, what does it mean to say that the notes are 'obligations' of the US Government?</p>

CC BY-SA 3.0
2016-01-12T00:01:10.823Z
There already exists a good answer (mainly) to this question over at http://money.stackexchange.com/questions/24418/why-is-a-coin-an-asset-whereas-a-note-is-a-liability-on-the-federal-reserves-ba. Hope this helps!
user6834
<currency><federal-reserve>
Federal Reserve Notes vs Coins
user3911038
# Federal Reserve Notes vs Coins

(Asked by: username_0 on 2016-01-11)

More of a two part question. In the current system (Fiat only currency), why is a Federal Reserve Note booked as a liability (on the Fed balance sheet), but a Coin is not booked as a liability by the Treasury? What is the difference? What liability does the Fed have since it doesn't actually have to redeem the notes for anything (other than another note?)

Also, what does it mean to say that the notes are 'obligations' of the US Government?

**Tags:** currency, federal-reserve

> **Comments:**
> **username_1**: There already exists a good answer (mainly) to this question over at http://money.stackexchange.com/questions/24418/why-is-a-coin-an-asset-whereas-a-note-is-a-liability-on-the-federal-reserves-ba. Hope this helps!  

---

## 1 answers

### Answer by username_2 on 2016-01-12. Score: 1

The referenced link from money.stackexchange.com with the top accepted answer is incorrect. It states:

"Coins are assets because its the actual money. Notes are liabilities because the Federal Reserve is obligated to pay money on these notes."

The Federal reserve is not obligated to pay money on the monetary base it creates and there is no objective financial difference between coins being real money and federal reserve notes being real money. They are both real money for all practical purposes.

Let me take a stab at the initial question.

Yes, Federal Reserve Notes are a liability to the Federal Reserve (as are electronic federal reserve dollars). It doesn't really need to be done like this. It's actually a holdover from when the US was on a partial gold standard. The central bank would hold gold deposits and in turn issue notes (dollar bills) which were redemption slips for those gold deposits. Because the central bank had to redeem dollar bills with gold, this is why it was classified as a liability. The US went off the gold standard twice (once under FDR to the public and later under Nixon for foriegners). When this happened, dollars were no longer true liabilities. But this history is why you see federal reserve notes (and federal reserve deposits which are electronic dollars) still classified as liabilities. And coinage is considered an asset to the Fed which they purchase from the treasury. You will still see some gold as an asset on the Fed balancesheet as a holdover from these times.

The Federal Reserve does not have a monopoly on creating the monetary base. The treasury can also create base money by creating coins and US Notes (which are not Federal Reserve notes).

The treasury does not consider the coin as a liability because it truly is not one (just as the dollar bill in a modern sense is not one to the Fed).

Looking at a balance sheet, you could almost argue that base money is a liability because it appears to be balanced by assets on the balance sheet. But this is not the case. It is an accounting illusion. If the Fed were to withdraw all their "liabilities" there wouldn't be any money in the system (outside of coins and notes of course).

The reference to the obligation on Federal Reserve Notes is an antiquated holdover from the gold standard era. It is quite meaningless now. The Fed will exchange if demanded electronic dollars for paper dollars, vice versa or will buy/sell coinage as required by the banks.

Coinage is not an obligation to the treasury, neither are US notes. The treasury will certainly repair damaged coins, but that is not to say that the coins themselves are true liabilities or obligations.

> **Comments:**
> **username_3**: Since both notes and coins distributed to the public can be redeemed to pay taxes they seem to act very much like a liability of the state (either directly in the case of coins or indirectly in the case of bills). I'm not disputing some accounting or legal arcana could make them different in the eyes of those professions, but in the eyes of economics how are notes a liability like an airline's frequent flyer miles or a store's gift cards but coins are somehow not?  
> **username_2**: The tax would be the liability actually.   The only reason reserve notes accounted for a liability is because they used to be one with the gold standard.  Now they are not.  Say we are in the gold standard...and I mine 10k worth of gold.  Asset or liability?  If I counterfeit 10k in green-backs...asset or liability?  Money is an asset.  Redeemable money, like bank deposits (M1-M2) as well as gold certificates were correctly considered liabilities though.  Coinage doesn't have a history of redemption in contrast.  
> **username_3**: I don't see how a tax can be a liability of the government because that would make them an asset of the people who owe them the taxes.  
> **username_2**: The tax is a liability to the public, not the government.  If I have a 4k property tax bill at the end of the year that is my liability, and not the governments.  Taxes are an asset to the government.  Money is an asset to those who own it.  
> **username_0**: @username_2 So the requirement on the Federal Reserve to have assets to backup the notes is really no longer necessary then? Since the notes are no longer true liabilities, they don't need an asset to balance it out? Is that correct or have I missed something...?  
> **username_2**: The Fed considers Federal Reserve notes liabilities instead of assets.  This is incorrect because they are not redeemable.  The Fed easily fixes their books by understating equity/capital.  With proper accounting new MB would increase capital and assets.  And when investments are purchased, this would just change assets around.   There is no reason the Fed has to consider MB a liability or that it has to be balanced.  Usually the Fed buys debt with new MB because they believe this prevents inflation but this is not true because of the maturity differences.  
> **username_4**: I like where some of this answer is trying to go, but it's missing an important point.  The Fed issues notes to buy things.   After the Fed buys a bond, the value of that bond is listed on the asset side of the balance sheet.  That asset *must* be balanced, and it is -- on the liability side, by the notes that the Fed issued to buy it.  This is no illusion, and the liability side can't be deprecated -- it's basic accounting.  
> **username_4**: @user253751  A currency issuer is a business. The major issuers today are stockholder corporations; this includes both the Fed and ECB.  Governments charter these corporations, sell bonds in the resulting currency in order to finance government operations, and then pay the interest on those bonds from tax revenue. Issuers who forget they are a business (or are manipulated by their host government) are considered higher risk by traders, who bid lower for those bonds, driving up interest rates, and who ask for more currency units in foreign exchange, driving up inflation.  
> **username_4**: @user253751  "The major issuers today are stockholder corporations".  A stockholder corporation is a business.  Take the time to read up on how modern money works from authoritative sources instead of hanging out here -- Federal Reserve web sites would be a good place to start.  

---

