Hey, there are aud Loots listeners. It's Tracy Alloway and Joe.
Why isn't thal.
We are very excited to announce that Oddlots is going to Washington That's right.
For the first time, we are going to do a live public Odd Lots recording in our nation's capital. That's going to be March twelfth in Washington, DC at the Miracle Theater and guests will be announced in the coming days. But in the meantime you can find a ticket link at Bloomberg dot com slash odd.
Lots, Bloomberg Audio Studios, podcasts, radio news.
Go flow it until the other door.
Shows and there's gonna be one more we got to go through, so come on and.
Oh wow, you can definitely get trapped in here.
This is the trap and everyone must come in and the door now we can go to the next.
Door, deep underground, coming through elevator. The sort of monochrome quietness, the uniforms. This kind of reminds me of severance a little bit. Has anyone made that observation before?
Hello, and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.
Is this the one where we get severed? Tracy my name is Jill Wisenthal, and I freely consent to being severed. Joe.
We are not getting the severance procedure, but we are about to go to a place that not many people get to see. We are going deep into the vaults of the Federal Reserve Bank of Chicago to tour its cash operations and get an inside look at how money is actually distributed.
Oh right, yes, okay, welcome to cash. In this episode, we take a walk through the basement of the Chicago FED and we learn all about how the central bank processes and delivers cash. Cash operations will not quote highly classified like in the inner workings of the office and the show Severance. They're well beyond the public eye for obvious reasons. So this is a rare look or listen, I guess at the inside.
Yeah, and you're not actually allowed to take any pictures or videos inside the vaults, So an audio format actually does pretty well here. And this is all really interesting because we're used to thinking about the FED in terms of monetary policy, raising or cutting interest rates to try to keep inflation in check and unemployment low, and there's stuff like bank regulation. Of course, we talk a lot
about that on the show. All of that can feel very theoretical, but there's this very physical side to the FED as well.
That's totally right. The cash in your wallet has got to come from somewhere, right, and a lot of it comes from the FED, or at least it moves through one of the twelve Federal Reserve Banks, the Bureau of Engraving and actually makes the money, and then it gets delivered and processed through the FED banks and the Chicago FED building itself.
I mean it kind of looks exactly like how you might picture an old fashioned bank. It has these giant, beautiful neo classical columns on the outside and inside inside is where the magic happens.
We set up a system in the United States with twelve reserve banks around the country because in nineteen thirteen, as today, people were deeply uncomfortable with the financial system being run exclusively by New York City and Washington, DC. So they wanted input from all around the country. And one component of the job is monetary policy, like we talk about all the time.
That's Austin Gouldsby, President of the Chicago Federal Reserve Bank, and you've probably heard him on the podcast. A couple of times before, very recognizable voice, and he's usually you know, talking about the macro environment, monetary policy, things like that.
But now you're going to hear him talk about something very different, being the bank behind the banks, the one that actually provides them with cold, hard cash.
We're also a real, live, working bank, and we got seventeen eighteen hundred employees. We are a bank two banks, and they have a master account. We pay interest on their deposits into that account, which our bank reserves, and we provide FED wire. We do ach direct deposit, we do FED now and one of the things we do
is cash. It's one of the FED financial services. And so if one of our member banks wants cash for their ATMs, they'll send in and say, just like you in your account, you go down the ATM, you take some cash out. They say, we want cash to put in our ATM, so take that out of our master account. They send a brainstruck over here and they place an order. We count it out, we give it to them. If they have too much currency, they send it to us
in the same brainstruck. We take it in, we run it through machines, we count it, we pull out anything that's been signed, or somebody spit on it, or you know it's dirty and shred it. We process it, put it in our vaults, send it out the next day, and we get a bunch of shipments of brand new money from the Bureau engraving and printing. So it's a very live operation and you're going to see it. There are a lot of people work there, there's a lot of machinery, and it's pretty neat.
Pretty neat is putting it mildly, because it turns out that Austin and Lusts giving the tours of the cash shop, something that was totally evident while we did it. I think most people on finance and economics love money, but Austin really loves money.
Yeah, So join me and Joe and Austin on this special edition of odd Blots as we follow how money actually moves through the Federal Reserve system. We are standing in the lobby of the Chicago Fed building. There's a beautiful staircase and a balcony that looks down on this gorgeous atrium. Apparently there used to be machine guns mounted up there, and now there's security guards at the entrance, the Fed's own police force.
And as Austin mentioned earlier, the Chicago FED was established in nineteen fourteen, and back then investors didn't have much reassurance that their bank deposits were, you know, actually safe. And after months of back and forth, Congress passed the Federal Reserve Act, establishing the FED Reserve System and the twelve reserve banks that cover the entire.
Country, and the Chicago FED covers parts of Illinois, Indiana, Wisconsin, Michigan, and the state of Iowa. And as we've said before, we are used to talking about whether the FED is doing a good job on things like inflation and unemployment, but we don't actually talk that much about its other big job, which is managing the money.
We know when we're doing a good job when you can go to an ATM and there's money in it. You can go to a grocery store and you can pay in cash and they have changed to give you in currency.
Mike Kepler is an executive vice president of the district's Cash Operation and the Chicago FED Central Bank Service Area.
So essentially I oversee the full currency operation between our Chicago and Detroit offices that includes everything from processing the currency on the high speed machines to paying our orders to financial institutions in our district and taking money in.
Even though we live in a world that's full of digital payment systems, cash still plays a role in everyday transactions.
Cash is Lindy, that's right, Jo.
It's extremely important. So you know, think about things like hurricanes or weather related events or power outages where electronic payments don't work. In fact, I was in the store the other day and their credit card system was down, and fortunately I had cash in my pocket, so I was able to jump the line and get my stuff and get out the door while theres were kind of waiting for the credit card machine to pop back up. So it is very important, and not all consumers use
just one payment type. So in fact, you can imagine in today's times, electronic payments, debit cards credit cards are the primary two vehicles that folks use for transactions, but cash is a third, very close third for payments.
And look, the thing is as the share of payments that are made electronically mobile banking using cards rises, people have this tendency to say, oh, well there is no cash. I don't even see cash. If you go look, you and you can look off fred. It's on there. Currency and circulation as a share of GDP is over ten percent, and that's among the highest percent on record, or at least since the nineteen eighties that you can find on FRED. That's double what it was in two thousand and eight.
That's like four times higher as a percent than it was forty years ago. And it's shockingly large per person. It's like forty eight hundred dollars per person on average in money.
Joe, I don't know about you, but I always keep four eight hundred dollars in cash just in case I have to spontaneously buy, like I don't know, a MacBook Pro or something.
Emergency lumber purchases, maybe a thousand chickens for you.
That's sure.
Hi, Hi, teat to.
The amazing Ami Colorado.
Welcome to cash.
Getting into the basement where the Chicago Fed's cash ops actually are is a process.
There's a lot of cameras, there's a lot of security, and there's a lot of rules. So don't don't go fishing in your pockets, don't pull out your wallet while.
We're right So there's no putting your hands in your pockets, and you're not allowed to carry anything with you after going down in the elevator. I'm not even sure what floor we're actually on, and we have to pass through multiple security doors before we get here.
But when we do get there, it's pretty cool. We're in the transfer area where money comes in and processing begins. And let me tell you, there's money everywhere.
So we're standing next to a big box filled with cash. How much would be in something like that?
Twenty is roughly eight and a half million.
Wow, Joe, grab it quickly.
Now you'll see a lot of money.
As we walk around today.
That's Amy Elvarado, the bank's vice president of district Cash Operations. She oversees the entire process.
Our team will go in the room and check all of the bags as the armored carriers drop them off. We'll make sure all the bags are intact and sealed and everything. We'll count them. We're doing this bag count and then we're signing off on it. That's when we would release the carriers, and that's the transfer process coming in.
There's a long hallway stretching out in front of us. The walls are white and there's rooms on either side that have large windows and glass doors. In fact, one of the most striking things about this place is just how much you can see.
Everything is seen through, even the doors. Amy and Austin tell us that transparency is paramount to the security of the whole operation, giving that they're dealing with, you know, cash.
A reason why these doors are clear is because we are never in the room with these carriers. At the same time. The carriers will come in onto the concourse, they will unload their currency bags onto rolling screens, as we call them, They will put them in the room, they will go back out the other side of the room. When our team comes in the room, they're supposed to watch us flip all those bags because it's still theirs at this point. And once we do that, we'll bring
the work in. But when we transfer work back out to them, same process happens. We go in the room, we drop off the currency, we come out. They come in, so we all need to be able to see through the glass of the transfer process happening.
All of these security rules apply to employees too.
People wear smocks, there are no pockets when they go in. The colors indicate who's doing what role. And we have very very good hygiene in an accounting.
Sense, and it's a tough job. Cash, as it turns out, is pretty we have you when you're piling up millions of bills, millions of physical bills. The Chicago FED process is something like five point five million pieces a day, and the actual currency value of that can be higher depending on the denomination of the notes.
Once the money comes into the FED, the cash is brought into a receiving room, which is down another floor of the basement. This room looks very similar to the transfer room.
And getting cash into the FED is just the first part of this process.
We would now open the bags and make sure we have the correct amount of bundles in each bag. And a bundle, as I'll point out, is what you see in these containers. They look like little bricks.
It like a brick of cash, like a brick of.
Cash, and it is ten straps of one hundred notes, so one thousand notes per bundle or brick as it
looks like. And so we open those deposits up, we make sure we have the correct number of bundles, and this is where we're entering in the deposit ticket, and we're making sure that all of the account is correct at the bundle level and then all of the work out of these rooms gets stored by denomination into containers where they will be stored in vaults until it's time for their piece count verification.
We make our way through more long, stretching hallways until we get to a room where there are a couple of workers sorting through a bunch of cash, and most strikingly, a big machine that takes up most of the room with a computer on the left side and stacks of money neatly sitting on top of the tables. They call this a high speed room.
And what's specifically and.
That's the sound of cash being that is hard measured.
That is the sound of the currency going into the machine, and it's singling those notes. So there's stacks of hundreds, right, they're going into that machine and they're kind of getting stacked on a rake, and it is really pulling those notes at rapid pace and then sending them singly one by one through the machines.
So it's not quite fed money intergo burr, but it is a high speed money processor go burr.
Some people are going to be disappointed that the FED is not literally printing the cash.
Certainly, we're imaging every strap that comes in here on the currency, so that information relates back to the banks that's sent it in, so we have that information. If there's any disputes, we certainly send that out to our financial institutions. The machine will cut the straps off and then take each individual note, run it through our sensors, and it will make rapid decisions on whether it is fit for circulation or it would be shred or if it needs to have another look.
So the sensors would be looking for things like if there's a mark on it, or a terror or that sort of thing.
Correct, it's checking the fitness level, so is it clean, is it soiled. It's checking the authenticity of it. It is checking that it's the correct denomination. So it's looking at all of those things very rapidly.
Does human judgment ever come into this or can it just be one hundred percent determined?
So any items that are rejected on the machine will go to a secondary process where the operators will handle notes by hand. They will feed them again through another set of sensors and it'll take that read. But the end determination on things like counterfeits are our staff are trained on counterfeits, they're tested on counterfeits, and they do
make those decisions as they're looking at those notes. So as you can see the large machine we talked about here at the end of the machine, and this tube that's going up into the ceiling, you can see the fluttering in that clear window looks like a bank drive up tu more pharmacy tube. That's where the shreds are exiting our floor to go to our bricketder. That's what it sounds like when they don't roll straight.
Notice the wall guards.
We have our bumpers for a reason.
What happens to all the shredded money? I know you sell some in like the gift shops.
Well we give it a well give it away, Well.
We definitely want some. But like what happens to the majority of it Here.
It's sent out for recycling. Most FED offices send it out to be recycled.
Recycled back into future bills.
No, here it's turned into some sort of fuel. We send it out and at other feds it's different to know one of the fed's condos.
Once the cash is all processed and sorted, it gets stored in the bank's vaults.
And these vaults are huge. They look straight out of a movie, think Ocean's Eleven, but bigger.
So as we locked it in, you got to lower the floor or the door cannot shut.
Each door weighs like eighty thousand pounds and you have to drop the floor to actually be able to open and shut them. So you just sort of have envision that.
If they tell you to keep your hands and arms inside the car at all times, you do it.
In this one, the vaults are over one hundred years old now, and it took over two hundred and twenty trips to transfer the Chicago Fed's entire cash holdings from their previous location to this new site.
You know, the wheel gets turning, relaxing in place.
Yeah, it's got kind of a master and commander's ship wheel field to it.
And what's the combination to a man, there's multiple. Now we turn the dials on the combination so that way it sets it back for the next business day, so no one could just come.
In and open it.
As we walk around these halls. Down deep in the basement, they're screens showing live streams of outside of the FED. Bill You could see the streets and sidewalks outside the bank.
Why is that showing a video of the outside.
So that is what we call the windows to the world, because, as Austin mentioned, we are in the basement and we want to know if it's raining, and instead of calling Austin to ask him if it's raining, we have our own windows.
We don't have windows. We got a second basement, a third basement, and you want to know is it's sunny.
Or Okay, So we're gonna come around the corner here and then we're gonna step inside. This is considered a working vault, so you follow me in.
It's the vaults, oh my gosh.
And so what we have in here are two more paying rooms, just like we talked about outside, and then this vault it has these working rooms and then we have inventory storage. You can see some of our leadership is in here doing some work right now. But this is where we have the new inventory stored, as well as some fit inventory and some of the orders that will go out tomorrow. Where the smell is.
The strongest, right, Yeah, you just smell that smell.
This is a fresh money.
That's fresh money.
The smell fresh money in the morning.
This is probably what I remember most about the experience, the smell of new money. This is where the FED keeps bills ready for distribution to banks.
Yeah, in a room with millions of dollars in it, that smell is strong. This is the room where you really get to appreciate the physical aspects of money, because, as it turns out, dollars aren't just green. When they're all stacked up, you start to see there's a whole range of colors in there. And of course there's that smell.
It's a good smell.
Yeah, And it's funny for the longer you work here, there is a thing really about nose blind because oh, I've heard you. You don't really pick it up as much anymore as our visitors are always like, what is that smell?
Yeah.
I went to the bureau engraving and printing. One of my quests was where does this smell? Command is it? The paper is in the wood and there are big buckets of the green ink, and.
I to go.
I was like, that's it.
That's the smell.
And this room is where the fit money, All the stuff that's been processed by the high speed machine gets paid out chines.
That machine creates fit inventory, and that's on the right side of the room. Here on the left side of the room. Are there orders that they're going to be paying out tomorrow, So our allocator will pull the orders like a grocery list. Those orders get downloaded. We have a list of how many bundles they want of each denomination. We'll fill it like a grocery list. They'll put the inventory on the table and then the verifier will confirm
blindly that count will enter that work in. Once that count is balanced, they will bag it and tag it, put into their containers by armored carrier, and then that work get stored in the vaults overnight and tomorrow will be taking it up to where we do our transfer process.
Mike will have the exact numbers. But we pay out probably one hundred forty million.
A day, hundred thirty five million a day, one hundred.
Thirty five million a day, and we take in one hundred million or nineteen one hundred nineteen million a day. And then you say, wait a minute, how how can you pay out more than Again, it is because we get new money shipped in from Bureau of Graving and Printing.
And it all comes full circle. The Bureau of Engraving and Printing, which has facilities in Washington, d c and fort Worth prints the money. They ship it to the reserve banks, where this whole process takes place, and then those bills go out to banks ATMs or wherever you're getting your cash money.
The life cycle of a bill is pretty interesting.
That's where the money is printed. They put it on pallets, They ship it to the reserve banks, and we receive it and you'll see it. It'll circulate for a few times. It will come back to the FED for processing. As it gets spent. They it goes to a bank. The bank puts it in the positi. They'll send it to us and say we got too much currency credit. Our deposit account. Will count it, run it through the high
speed machine. If it's too dirty, will shred it. If it's fine, we'll bundle it up, put it in a package, and send it out to the next bank that needs more cash for their ATM. And that's kind of the cycle. The money comes in, gets stuck in the vault, goes out the next day or whenever people want it, and it's supplemented by the new money that comes from bureau engraving and printing.
In terms of a life span of a dollar bill or currency, it ranges somewhere from the one dollar bill. I think last an average is six point six years out in circulation versus as you can imagine, the one hundred dollar bill less used probably more of those people to keep it in their homes under mattresses or whatever. That circulates every twenty two point nine years, So quite a bit of difference, but it varies based on the denomination.
There's supposed to be a strip. Yeah, you can.
Say it's green. If you put the UV light right up against it, it gets brighter. But there's a green strip.
I don't know.
I hope. We end our tour at the Chicago Fed's Money Museum, which is both fun and even though it's about money, it's actually free to enter and you can learn even more about cash.
Yeah.
So if you're ever wondering which of the twelve Fed banks your money comes from, if you look at the bill, you see a big letter printed on each note on a one dollar bill, it's just to the left of George Washington.
F Who's f that's Atlanta. This is Atlanta money. No wonder, it's not no wonder, it's not there. So you can see the in the corner that's the equivalent of the G. They don't want to. So B would be the second district, that'd be in New York. C C would be third district. So is that Philadelphia? I think it might be Philadelphia.
Each letter corresponds to the regional Fed that it passed through. So if you're wondering what the Chicago Fed is, that's G that's Chicago money. So the Chicago Fed will put in an order with the Bureau of Engraving and Printing for new cash, and that money will be made and sent to the Chicago Fed.
And let me tell you, Joe, I will never look at cash the same way again. I will annoy everyone that I know by telling them which Fed, bank or money came from.
And with that, our tour comes to an end and we're thrown back out into the real cashless world and we are blinded by the sun.
Yeah, but we learned a lot. And how many people actually get to say they've seen billions of dollars in cash without doing something illegal?
All right, Tracy, I am ready for my waffles and dance party that let's go.
Special Thanks to Austin Goolsby, Mike Kepler, Amy Alvarado, Mark Peters, and the staff at the Cash Operations Department of the Chicago Fed.
This special look aside How the fit Stash is Cash was written by Tracy Alloway and Carmen Rodriguez. I'm Jill Wisenthal and together with Tracy, we co host the Odlots podcast. Carmen produced this episode with the help of dash El Bennett and Cal Brooks. Blake Maples is our sound engineer. Brendan Newnam is our executive producer. Sage Bauman is the head of Bloomberg Podcasts.
If you enjoyed this special Odlots episode, then please leave us a positive review on your favorite podcast platform. Thanks for listening. Not in Ins