Banks - Printing of Money

Banks - Printing of Money

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Who decides when to print money in the US ?

By Investopedia AAA |


The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal Reserve has control of the money supply through its power to create credit with interest rates and reserve requirements. Since credit is the largest component of the money supply by far, colloquially people talk about the Federal Reserve increasing the money supply as printing money.
 
FEDERAL  RESERVE
However, this thought process is technically not true as the Federal Reserve has no control over the printing of physical dollars. Instead, the Federal Reserve functions like a bank for all the other banks in the country. It lends money to banks and maintains financial stability by tweaking reserve ratios and interest rates to balance the twin objectives of maximum employment and price stability.
 
The myth that the Federal Reserve prints money only became prevalent following the Great Recession when many were concerned about the unconventional policies of the central bank, which included intervention in the commercial paper market, mortgages and outright purchases of debt to keep the system from collapsing. By the end, the Federal Reserve expanded its balance sheet by nearly $4 trillion.
 
Many who were against an interventionist central bank opposed this credit creation as printing money, which would lead to hyperinflation. The Federal Reserve and its defen-dants argued that its policies were more of a reaction to economic conditions and the absence of expansionary fiscal policy. With the crisis in the rear view, there has been no inflation and the U.S. economy has outperformed its counterparts, vindicating the actions of the Federal Reserve as not being merely money printers.

TREASURY  DEPARTMENT
The Treasury Department is actually the entity responsible for printing paper currency and minting coins, overseeing the Bureau of Engraving and Printing, or BEP, and the U.S. Mint. As of August 2015, there is approximately $1.2 trillion in cash. Much of this is located overseas where, due to a lack of faith in local governance, U.S. dollars are used.
 
When banks need cash, they request it from the Federal Reserve. The Federal Reserve electronically deposits it into the bank's account and charges the appropriate interest rate. When they have excess cash on hand, banks return it to the Federal Reserve, settling any accounts.
 
The Federal Reserve has 12 regional banks that supervise banks in local areas. These regional Fed banks are responsible for meeting the physical currency needs of local banks, providing cash and taking excess cash. They also take currency out of circulation when it is deemed to be damaged, counterfeit or   just too old. They order newly printed bills and coins from the BEP to replace discarded notes and coins.
 
 
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