How does the federal reserve bank issue circulated bills? How do circulated bills end back up in the fed?

I work at a bank and i receive dollar notes, uncirculated. The notes come in 1,000 plastic wraps from the Federal Reserve Bank. I also have circulated bills with the same wrapping from the fed. In our bank the only bills we turn in are either counterfit potentials or extremely worn notes.

Answers:
The Federal Reserve branches act as the banker's bank for currency.

All member banks maintain account balances at the Fed.

When your bank needs currency, they send a request for withdrawl. The Fed sends the requested currency and debits their account.

When the bank has excess currency, they send it to the local Fed branch where it is credited to their account. It sounds like your bank does not get a lot of excess currency, probably because your customers are not cash-businesses. So demand for currency exceeds the currency deposits that come in

Fed branches get their currency reserves from two sources:
1) Old bills from banks depositing excess currency
2) New bills from the Bureau of Engraving

When old bills are received, they are inspected by hand and machine. If they are worn out, they are destroyed. If they are still usable, they are put back into the currency reserve for re-distribution.

When the Fed determines that currency reserves are low, they order new currency from the Bureau of Engraving

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