As it was compelled in 1933
In 1933, because Corp. U.S. failed to pay any of their obligations, in accord with their agreements with the Federal Reserve Bank (hereinafter “FRB”), Corp. U.S. went bankrupt to the FRB. Corp. U.S. had amassed so much debt in unpaid rent and interest on said rent that it could not possibly pay its debt. As a result of the bankruptcy, Congress announced an emergency “banking holiday” where the local banks throughout the country were closed and all of the Federal Reserve Notes (hereinafter “FRN”) were removed from the banks and returned to the FRB; thus, ending the rental of all of those FRNs. During the “holiday” the banks were also restocked with new notes from the FRB. These new notes included a “New Deal”.
The new FRB deal included new notes. These notes were also called “Federal Reserve Notes”; but, where the FRN the people were familiar with stated words to the effect of , “redeemable at any Federal Reserve Bank”, the new notes stated, “this note is legal tender for all debts public and private”. The new FRN were acquired by Corp. U.S. and circulated in virtually the same manner as the old FRN; but, the new FRN was not redeemable except in “like kind”. Therefore, if the people were to take the new FRN to the FRB they would receive a “like kind” exchange of notes, new for old.
Though the original FRB deal was better for the people, the new deal fit with the law of notes; which only requires a like kind exchange. To the people, their exchange of the notes was always treated by them like a monetary exchange and they originally saw the FRN just like money; because, it was directly exchangeable for money. The new notes they perceive as far less valuable and prone to inflation. The reality is, new or old, the notes were acquired in the same fashion; they were arbitrarily printed on paper and rented into circulation—much like cars are rented in car rental agreements. The FRB simply no longer backs the FRN with gold and silver coin money due to Corp. U.S.’ bankrupt status; and, as a bankrupted entity Corp. U.S. can no longer compel performance on its debts.
To start the FRB program the FRB needed to back its notes with actual money; after the Corp. U.S. bankruptcy, they didn’t need to back their FRN at all—FRN became the transaction instruments used to facilitate transactions between Corp. U.S. agencies.