Dec 26, 2008

The FED's shredded dollar...

As a tourist site, Federal Reserve is worth its weight in gold

Amid these troubled economic times, a trip to the central bank is an eye-opening glimpse into the world of currency. Plus, don't you want to see the big vault?

By John Horn
Los Angeles Times
December 24, 2008

The stock market was in the middle of another spectacular gyration -- up more than 500 points one day after dropping more than 400 -- and President Bush had come to try to calm Wall Street, urging world leaders not to over-regulate free markets. The economic crisis was palpable throughout Manhattan's downtown financial district, yet the atmosphere inside the Federal Reserve Bank of New York was eerily serene, almost like a church.

It was fitting, for money is worshiped at the Fed, as the central bank is known, and an outing to the nation's central bank feels like a trip to capitalism's cathedral. Where the bodies of saints would otherwise lie, the bank's catacombs are stuffed with about $180 billion in gold bars -- more yellow metal than is stowed in Ft. Knox, and almost a quarter of the world's supply.

As New York tourist destinations go, the Liberty Street historic landmark attracts a fraction of the visitors to the city's more famous spots. But the bank plays a much more vital part in our daily lives: The Fed implements monetary policy and, in the New York building's open market trading floor, handles billions of U.S. government debt. It's all a part of how the government is trying to rescue the economy, primarily by dropping interest rates.

The bank's free, 30-minute tour won't leave you fully grasping the nuances of reserve requirements and the difference between real and nominal gross domestic product. Yet you will leave knowing a lot more about money than when you walked in, and some of it will be more enjoyable than your college economics class.

The first thing you come across while waiting for the guided tour is what looks like an unguarded gold bar, slowly spinning with the invitation, "Help yourself!"

But the bar turns out to be a hologram, your hand passing through it like fog. Though the guided tour is largely humorless and strict (you're instructed not to take pictures or notes during the visit to the massive subterranean gold vault), the displays in the lobby -- a stunning foyer adorned with some of designer Samuel Yellin's 200 tons of ornate wrought ironwork -- are surprisingly fun, even as they're informative.

Used bank notes are no longer burned (it's not green to send up green in smoke) but shredded, and there's $48 million in minced $100 bills in one display, part of the $105 million in paper currency cut up daily.

Not far away, an exhibit about counterfeiting presents some really good fakes; only with an oversized magnifying glass that slides over both the real and the ersatz bills (along with some what-to-look-for pointers in the exhibit) can you spot the impostor $5, $10 and $20 bills.

The American Numismatic Society has lent the bank hundreds of rare coins and currency to illustrate the history of money, grouped by era and region. The highlights include a shekel from 109 BC, similar to the 30 pieces of silver paid to Judas for Jesus' arrest, and the most valuable coin ever sold, a 1933 Double Eagle that fetched nearly $8 million in a recent auction.

New York's Fed is one of a dozen Reserve Banks that make up the country's central bank, and the rest of the lobby tour outlines their history and role. Once a clearinghouse for checks and a walk-up sales location for Treasury bills, the Reserve Banks, among other current responsibilities, supervise and regulate state-chartered banks and foreign bank branches.

The bank's top historical exhibits are interactive. The best is called "Match Wits With Ben" (as in Franklin), a computer game in which your knowledge of monetary policy is measured against a clock. There are only seven questions, but you will likely miss about half of them unless you dream of stock tables in your sleep. Sample: What organization did the United States create in 1865 to suppress counterfeiters? Answer: the Secret Service.

After the Sept. 11 terrorist attacks (the World Trade Center site is just a few blocks to the west), the Fed tour eliminated a stop in the bank's trading floors, making the trip down to the gold vault the centerpiece of its guided visit.

Two-dozen MBA students were in my group traveling five stories below street level to see the vault, and they nearly swooned when they saw all the gold bars (each worth about $320,000) neatly stacked to the ceiling.

Ninety percent of the gold belongs to foreign countries, stored in the Fed's little cells for safekeeping. The bricks are so heavy (about 28 pounds each) that vault workers wear $500 magnesium boots to avoid smashed metatarsals, and the concrete floor is dented from bars that once toppled over.

As soon as the tour is over, guests are given a free little bag of shredded bills. It's a funny souvenir of one of the bank's functions, but a more sobering -- though unintentional -- reminder of the status of the economy.

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