Okay, so I'm a former econ major (albeit not a very attentive one), and I'm confused. The
NYT has an
article on the issuing of dollar coins, and the fact that they won't be successful until the dollar bill is withdrawn. The article includes this (to me) confusing note:
A banknote, since it is redeemable, counts as a government liability, and the Federal Reserve has to back it by buying securities, which earn interest. According to the Fed, there are now about eight billion dollar bills in circulation, so that interest income is considerable. Coins do not yield such income.
Huh? I always thought the purchase of securities (e.g. Treasury bonds) was just the Fed's vehicle to increase the quantity of money. From that perspective, whether you're issuing coins or bills is irrelevant. And what, exactly, is a banknote "redeemable" for? The USD is
fiat money, i.e. "legal tender because we said so." Am I missing something here?