The U.S. Federal Reserve controls the money supply in the United States. However, it doesn't actually print currency bills itself. The Department of the Treasury prints bills based currency amounts set by the Fed.
Key Takeaways
- The U.S. Federal Reserve controls the supply of money in the U.S.
- When it expands the money supply using monetary policy tools, it is often described as printing money.
- The job of actually printing bills belongs to the Treasury Department's Bureau of Engraving and Printing based on how many bills the Fed determines should be issued each year.
- Quantitative easing, an asset-purchase program, is one way the Fed increases the money supply in times of financial crisis.
How the Fed Affects Money Supply
People in the media often talk about the Fed printing money. What the media usually means is not that the central bank is actually producing dollar bills but that it is increasing the nation's supply of money. For instance, it did this during the Great Recession and during the pandemic.
To increase the money supply, it primarily uses three monetary policy tools:
- It can ease its reserve requirements for banks, which makes more money available for banks to lend;
- It can change the discount rate at which it lends money to financial institutions, which can make it more attractive for them to borrow; or
- It can conduct routine open market operations whereby it purchases Treasury securities from financial institutions.
Steve Meyer, a senior advisor to the Fed's Board of Governors, explains how payment for the last is made. “You may wonder how the Fed pays for the bonds and other securities it buys," he says. "The Fed does not pay with paper money. Instead, the Fed pays the seller’s bank using newly created electronic funds and the bank adds those funds to the seller’s account.”
Each policy tool can increase the funds in the money supply, which means more money is available to lend to consumers and businesses. By printing money, the Fed can spur economic activity and growth.
The Treasury Prints Currency
The job of actually printing the money that people withdraw from ATMs and banks belongs to the Treasury Department's Bureau of Engraving and Printing (BEP), which designs and manufactures all paper money in the U.S. The U.S. Mint produces all coins.
The amount of currency printed by the BEP each year is determined by the Fed, which submits an order for it to the BEP. The Fed then distributes that currency via armored carrier to its 28 cash offices. In turn, that is distributed to 8,400 banks, savings and loans and credit unions across the country.
For the 2023 fiscal year, the Fed's Board of Governors ordered 4.5 billion to 8.6 billion Federal Reserve notes—the official name of U.S. currency bills—valued at $166.6 billion to $190.5 billion.
How the Fed Creates Money With Quantitative Easing
Quantitative easing (QE) is the name for the government's large-scale purchases of various intermediate- and long-term debt securities that it has conducted to reduce longer-term interest rates, increase the money supply, and boost demand. It has done this periodically to promote economic activity during times of dire financial crisis, such as the financial crisis of 2008.
Under its QE program, the Fed has purchased Treasury bonds, mortgage-backed securities, and corporate bonds. When it takes such action, it conveys a message of support to the markets that can result in a stabilizing effect and prevent panic.
To aid an economy battered by the Great Recession, the Federal Reserve added trillions to bank reserves by purchasing long-maturity bonds, mortgages, and agency securities through its quantitative easing effort from 2009 to 2014. By 2017, bank reserves amounted to over over $4 trillion.
Differing Views of QE
QE is seen as controversial by some. Critics of QE have argued it would lead to hyperinflation, while its defenders have said it's been a necessary response to extraordinary economic and financial conditions and an absence of an aggressively expansionary fiscal policy.
The moderate inflation and relatively strong economic recovery in the years that followed the Great Recession were seen by many as vindicating the Fed's approach.
Why Does the Fed Still Place Currency Orders?
The Fed continues to place currency orders because people and businesses still want actual cash and see it as proof of the availability of funds. The government understands that printed currency allows for, and encourages, ongoing commercial transactions.
When Does the Fed Increase the Money Supply?
Normally, you'll see the Fed print money, or increase the money supply, when economic activity slows. It does so to spur demand for products and services and economic growth.
Is the $2 Bill Still Printed?
Yes, it is. In fact, due to its popularity, the Fed's 2023 currency order was revised to include 64,000 to 128,000 $2 bills, when none had been ordered originally for the year.
The Bottom Line
When it's said that the Fed is printing money, what's actually meant is that the Fed is increasing the money supply using its monetary policy tools, which include buying securities in the open market.
The Treasury Department's Bureau of Engraving and Printing handles the printing of currency bills in the U.S., as directed by the Fed.
Correction—Sept. 19, 2023: A previous version of this article incorrectly associated Quantitative Easing with the Federal Reserve's normal open market operations.
FAQs
U.S currency is produced by the Bureau of Engraving and Printing and U.S. coins are produced by the U.S. Mint. Both organizations are bureaus of the U.S. Department of the Treasury.
Who is responsible for printing U.S. money? ›
The Bureau of Engraving and Printing (BEP) produces United States currency notes, operates as the nation's central bank, and serves to ensure that adequate amounts of currency and coin are in circulation.
Does the Fed or Treasury print money? ›
The Fed does not actually print money. This is handled by the Treasury Department's Bureau of Engraving and Printing.
Can the U.S. just print more money? ›
It wouldn't be historically unprecedented. In fact, it's been done many times in the past. But nothing comes free, and though printing more money would avoid higher taxes, it would also create a problem of its own: inflation. Inflation is a general increase in the prices of goods and services throughout an economy.
What is the US dollar backed by? ›
Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.
Where is U.S. currency printed? ›
All U.S. currency is printed at our facility in Washington, D.C. and at our facility in Fort Worth, Texas. In addition to manufacturing U.S. paper currency, BEP also prints a variety of U.S. government security documents.
Who pays for printing money? ›
Each year, the Federal Reserve Board projects the likely demand for new currency, and places an order with the Department of the Treasury's Bureau of Engraving and Printing, which produces U.S. currency and charges the Board for the cost of production.
Who has the power to print money? ›
The Treasury Prints Currency
The job of actually printing the money that people withdraw from ATMs and banks belongs to the Treasury Department's Bureau of Engraving and Printing (BEP), which designs and manufactures all paper money in the U.S. The U.S. Mint produces all coins.
Can you buy the paper money is printed on? ›
You can purchase uncut currency in sheets of 4, 5, 8, 10, 16, 20, 25, 32, and 50 notes per sheet. Not all notes, however, are available as uncut currency in all of these sheet sizes. Smaller sheet sizes are cut out of the original full-size sheets.
Where does money go after it's printed? ›
Federal Reserve Bank cash offices distribute banknotes to the public through depository institutions, such as commercial banks, credit unions, and savings and loans associations. Federal Reserve Banks are responsible for processing banknotes to ensure that they are genuine and fit for recirculation.
Nearly half of all US foreign-owned debt comes from five countries.
| Country/territory | US foreign-owned debt (January 2023) |
|---|
| Japan | $1,104,400,000,000 |
| China | $859,400,000,000 |
| United Kingdom | $668,300,000,000 |
| Belgium | $331,100,000,000 |
6 more rowsDoes Printing Money Cause Inflation? Yes, "printing" money by increasing the money supply causes inflationary pressure. As more money is circulating within the economy, economic growth is more likely to occur at the risk of price destabilization.
How can the U.S. get out of debt? ›
Of course, just as with an individual or family, cutting spending and increasing revenue are smart first steps. Beyond that, the government considers things like new taxes, a higher retirement age, removing loopholes from the tax code, and more to reduce annual deficits and the national debt.
What is the strongest currency in the world? ›
The Kuwaiti dinar is the strongest currency in the world, with 1 dinar buying 3.26 dollars (or, put another way, $1 equals 0.31 Kuwaiti dinar). Kuwait is located on the Persian Gulf between Saudi Arabia and Iraq, and the country earns much of its wealth as a leading global exporter of oil.
Who owns the gold in the Federal Reserve? ›
Although the Federal Reserve does not own any gold, the Federal Reserve Bank of New York acts as the custodian of gold owned by account holders such as the U.S. government, foreign governments, other central banks, and official international organizations.
How did the US get so much gold? ›
The vast majority of the gold reserve was obtained from US natural resources, and a large trade surplus in the early 20th century through WWII. During this era, most debts were settled in gold bullion. In addition, many US allies, deposited gold based on security concerns during the wars.
Why doesn't the government stop printing money? ›
Most money is actually created by private banks and so attempts by the central bank to limit the money supply are doomed to failure. The bank can influence the demand for money by increasing or decreasing interest rates, but does not control the money supply itself.
Why can't the government just print more money to get out of debt? ›
Printing more money is a non-starter because it'd break our economy. “It would take care of the debt but at a price that's far too high to pay,” Snaith says. So what is going to happen with the debt ceiling? Snaith predicts that, after a few more weeks of infighting, lawmakers will eventually agree to raise the limit.
Who controls how much money a country can print? ›
To ensure a nation's economy remains healthy, its central bank regulates the amount of money in circulation. Influencing interest rates, printing money, and setting bank reserve requirements are all tools central banks use to control the money supply.
Is printing money a federal law? ›
Only the federal government has the right to print money.
