Question

please answer the question briefly:

how does the federal reserve create money?

Answer 1

Federal reserve is the apex monetary authority of The United States. One of its most important function is creation of money. Money creation also means expanding or increasing the money supply in the US economy. In earlier days the creation of money took place through printing and minting of new paper notes and metallic coins and imprinting them with anti fraud devices. Now money doesn't mean physical money only. A vast majority of money in the US economy is digitally debited and credited through major banks. Hence now the FED create money through open market operations, drafting of readily liquifiable accounts such as US Treasury's and adding them to existing bank reserves. Creation of money is increasing money supply. One way to increase money supply is through increasing bank deposits. Because when deposits increases the bank's loan out this money into the economy thereby increasing money supply. Inorder to do this FED go for open market operations i.e, buying and selling of bonds. Money is created by fed through these methids