William E. Jones swung open the double doors of 406-408 Chestnut Street in Philadelphia one morning in 1914, admitting not only the brisk autumn air but a new era in banking as well. It was November 14, the first day of business for the bankers' bank, the Federal Reserve System.
That morning, as Jones politely answered the questions of curious passersby, twelve Federal Reserve Banks opened around the country. Their responsibilities included the establishment of a flexible supply of currency for banks and the control of the quality of cash in circulation.
The need for a central bank became clear during the Bank Panic of 1907, when cash reserves fell perilously low as a result of banks' over investment in common stocks. The public lost faith in the banking system, businesses began to insist on cash payment, and a recession had developed. By 1912, a Congressional commission concluded that a central bank, separate from the federal government and administered by banks, was needed. A dozen geographic Districts were created, each served by a Federal Reserve Bank in the region.
In Philadelphia, where the Third District is based, the Federal Reserve Bank grew rapidly. Initially, the Fed had 24 employees and four officers and borrowed extra staff as needed from a local typewriter company. By 1918, it had grown to 419 employees and 11 officers, necessitating a move to new facilities at 925 Chestnut Street.
Federal Reserve Banks operate much like any other bank: They accept and verify deposits, and provide cash on demand to their customers, individual member banks. In addition to these and other duties, the Fed is instructed by the Department of the Treasury to identify and remove from circulation old, defective, and counterfeit currency, and to distribute new currency to replenish the supply.
These tasks have changed little since the Fed's first day, though the way in which they are accomplished has changed a great deal. Let's take a quick look at currency counting over the Fed's history.
At first, the Fed counted money the same way you do when you look in your wallet -- one bill at a time. Tellers made sure that packages held exactly 100 notes of the same denomination, and judged authenticity by sight and feel. In Philadelphia, they sat elbow-to-elbow at two rectangular tables in a large room with hardwood floors, their work illuminated by a floor-to-ceiling window protected with a lattice of iron bars -- standard security at the time. The only equipment was a few adding machines. In the same room, just a few feet away from the tellers, bookkeepers and telephone operators were busy at work.
Moving to 925 Chestnut, the former Penn Mutual Insurance Building, gave the Fed access to a vault suspended in thick glass. Then as now, visibility equaled security. The floor below the vault could be clearly observed, and it was easy to detect any attempt to tunnel in from outside. There were other security enhancements, including roll-top desks, which kept each counter's work separate and could be closed and locked.
Late in the 1920s, currency counting became mechanized with the introduction of the Federal Bill Counter, a machine that kept a running tally of currency while the teller sorted and inspected notes. When the number of notes in any of the machine's four compartments reached 100, the counter would stop automatically and the teller would insert a wooden block to separate the bills. The Federal Bill Counter enabled tellers to keep pace with rapidly increasing volumes of currency and was considered a marvel of the modern age.
The new machines were abruptly idled on the afternoon of October 29, 1929, however when the Federal Reserve Board of Governors in Washington declared a bank holiday in response to the stock market crash. Work was halted at 3 p.m. and Fed employees were told to immediately leave their desks. Shocked, they milled in the Bank's halls and cafeteria until after midnight, waiting and speculating. Though no business was transacted at the Fed or any other bank in the United States for the next week, the staff continued to report for work each day. The banks reopened on November 7.
As the Depression deepened, the public's faith in the banking system waned. Many banks failed as customers rushed to rescue their savings, draining institutions' cash supplies and threatening the whole banking system with collapse. To restore control and confidence, President Franklin D. Roosevelt ordered all banks closed for several days in 1933.
Again, Philadelphia Fed employees reported to work during this time, but were not permitted to go to their desks. Instead, they looked on astounded as the presidents of banks carried their institutions' valuables — ornate desks, expensive clocks, and even rolled-up oriental rugs — onto the Fed for safekeeping.
When the banks reopened, they had to guarantee that the federal government would stand behind deposits.
Currency counting changed little during the '30s. Federal Bill Counters and roll-top desks were still used. Sorting was done manually and by District, so that unfit currency was returned to the Federal Reserve District in which it had been issued. Counterfeit bills were sent directly to the Secret Service for investigation.
In the 1940s, the concerns of wartime led to a new accessory for currency counters — the locking canvas bag. Throughout World War II, like most public institutions, the Fed conducted frequent air raid drills for employees. These exercises gave tellers the chance to practice securing their cash in the canvas bags, which they deposited in steel trucks before heading for the designated air raid shelter. The trucks were then taken to the vault. In the sub-basement, boxes of food, water blankets and other supplies were stored, in the event that an evacuation was not merely a drill.
In the 1950s, a new top floor and air conditioning were added to 925 Chestnut, bringing summer-time relief to employees and eliminating the problem of fan-propelled currency and settlement sheets. Life at the Bank reflected the innocence of the time; for example, each afternoon a candy vendor stopped in the counting area, so busy tellers could buy snacks. Unfit currency was burned at a local crematory, a practice that ended in 1953 when the Bank installed its own incinerator.
If you were a new Federal Reserve teller in the 1960s, you would begin each day by sorting 15 bundles of dollar bills. As you became more proficient, the volume would increase and you would be allowed to handle larger denominations. By the middle of the decade, 55 currency counters were employed by the Philadelphia Fed, but just a few were qualified to handle $50 and $100 notes. The Federal Bill Counter, virtually unchanged in design, was still the centerpiece of counting equipment, and fitness and authenticity continued to be determined by sight and feel.
After 58 years, space and security needs finally led the Fed to leave its Chestnut Street home on July 10, 1976. Though the move was expected, the timing was a carefully guarded secret. Just minutes after midnight, the first in a caravan of armored trucks carrying several billion dollars set out on a five-block route to a spacious new facility on Independence Mall. The route was lined with 100 Philadelphia police officers, numerous Federal Reserve security guards, rooftop sharpshooters, a hovering helicopter, and escort cars filled with 24 Secret Service agents with firearms drawn. The wary transfer continued for the next five hours without incident.
In the new building, Cash Operations, which consisted of Currency Counting, Coin Operations, and the Cash Vault, took up residence about 40 feet below street level. It is a huge area with the Cash Vault alone the size of a football field. To increase security, for the first time surveillance cameras came into use.
The volume of currency continued to grow. To help the Currency Counting staff keep up, the Bank began strap-sorting the $1 to $20 notes. Units of 100 notes (called straps because they are secured with straps) were visually inspected and weighed against a counterweight equal to the paper mass of 100 genuine U.S. notes. Though this method proved more time efficient, it was not as precise, since some fit currency was classified unfit and destroyed, while some bills that should have been destroyed were returned to circulation.
Notes of higher denominations were sorted and authenticated with a medium-speed counting machine that employed ultraviolet light and a magnetic sensor. Despite its more sophisticated technology, this equipment could not identify or separate unfit bills, creating a need for a high speed machine able to separate not only unfit bills, but suspected counterfeit and wrong denominations.
Sorting problems were effectively solved in Philadelphia in 1981 with the introduction of the Fed's first computerized currency counting equipment, the REI High-Speed machine.
For anyone familiar with the older, slower methods of handling currency, computerized counting was revolutionary. At the rate of 72,000 notes an hour, the REI culled bills that were the wrong denomination or positioned incorrectly. It also sorted for fitness, shredded those deemed unfit, and counted and banded fit 100-note straps. If fit, rejected notes could be recirculated, or incinerated if unfit. Bills headed for incineration were also bundled and indentified with a cancellation mark, four squares punched through the notes by a special machine.
Interestingly, computerized equipment did not entirely replace the machine that had been central to currency counting since the '20s, the Federal Bill Counter. In fact, the new technology could be used with the historic machine, which extended its usefulness well into the computer age. (The Federal Bill Counter was not retired until 1996, 68 years after its introduction.)
In addition to increased speed, computerization changed Cash Operations' work setting and procedures. The division now operated on a raised floor above a nest of cables, lifelines transported electricity, data, and the air conditioning needed to keep the computers functioning. A sunrise shift was added to handle the ever-increasing volume of currency. Tellers received extensive training to work with the sophisticated equipment, learning to interpret complex error messages and solve settlement problems.
By the end of the 1980s, the Federal Reserve System had started to make the transition to its second generation of high-speed counting equipment, the BPS 3000, to handle increasing volumes. Using current technology, the BPS 3000 was faster than the previous REI equipment. It also provided more sophisticated note authentication to account for the newly designed Federal Reserve notes that were released at the end of the 1990s. Between 1994 and 2000, the Philadelphia Fed installed eight BPS 3000 machines in its cash operation. Straps of currency are loaded into this machine. The machine removes and stores the strap for reference when a difference is detected. The notes are then individually scrutinized by highly sensitive detectors for fitness, denomination, and authenticity. As it has throughout its history, the Fed forwards all counterfeit currency to the Secret Service and works closely with the agency to determine the sources of counterfeit bills. Rejected bills are placed on a reel for further automated examination, and those declared unfit after a second look are shredded. Notes deemed fit for recirculation are strapped and packaged in bundles of 10 straps for future payout to customers.
The first decade of 2000, saw dramatic changes to the Philadelphia Fed's processing environment. Previously, currency counting took place in several identical rooms, each constructed with floor-to-ceiling glass walls and equipped with 11 cameras. On two shifts, teams of up to four employees processed approximately 850,000 notes daily under stringent security. In 2004, the Philadelphia Fed implemented a "multiple machine room" concept, which used a team of up to six employees to operate two BPS 3000 systems at the same time. The processing rooms were expanded for running dual machines. This change enabled the Philadelphia Fed to recognize efficiencies in the operation and become more productive. In 2002, the Philadelphia Fed introduced an alternative method for destroying small amounts of rejected notes that could not be shredded on the high-speed equipment. This new process eliminated the need for the off-line destruction process that had been used since the 1980s.
In late 2008, the Philadelphia Fed began upgrading its high-speed BPS equipment to replace obsolete hardware and software components. The new equipment will enable the Philadelphia Fed to provide its customers with images of their straps when differences are detected. When the upgrade is completed, the new BPS equipment will be notably faster than its predecessor and will enable the Federal Reserve System to continue using the existing equipment for many years to come.
Today, the availability and quality of coin and currency in the Third District are managed by the three divisions of Cash Services: Coin Operations, Currency Counting, and the Cash Vault. Coin Operations is responsible for distributing coin received from the Mint to financial institutions in the Third District and for safekeeping an inventory of coin to meet future demand. Currency Counting verifies bank deposits and improves the quality of currency in circulation. The Cash Vault supplies the cash needed by Third District financial institutions from a warehouse filled with stacks of fit and new currency.
Continually upgrading Cash Services' computer technology continues to bring new levels of proficiency and security to currency counting. For example, when a question arises and Cash Services needs to investigate what happened at a particular time in a particular counting room, a second-by-second visual and data record can be retrieved from the BPS equipment.
From its first day of operation, the Federal Reserve Bank has provided a stable and secure money supply for the United States, reassuring banks and individual customers that they can depend on the availability, quality, and authenticity of their money. In doing so, the Fed provides a firm foundation not just for banking but for the American economy as a whole.