Federal Reserve Notes Are Backed By Nothing Federal Reserve money is backed by absolutely nothing; fiat money. It is a note; an instrument of indebtedness, which floats around as currency. People will accept it because they have been bred to accept it. You cannot trade it in for anything. It is not redeemable in anything. It only functions so long as there is public confidence in its ability to be exchanged between one thing and another. It is based on the faith that people have in the US Government and the Federal Reserve. Most people do not think about the Federal Reserve. They think about the United States Government can backup what it is that they are issuing. That is a question that the central banks of other countries and the politicians of other countries have always been questioning just how stable is the United States. Its currency is dependent upon that and just about every central bank in Europe and other parts of the world holding large reserves of US Dollars for trade purposes so their companies in their countries can convert it into whatever. If they want to buy something in the United States, they have to convert their currency into US Dollars and it’s usually done by the Central Bank in their country for trade purposes.
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