Is the Fed the Only Means of Creating Money?


QUESTION: I am confused. Is it true that only the Federal Reserve can create money and not the Treasury?

HB

ANSWER: It all depends upon your definition of money. If you are asking about paper currency, then the answer is yes. If you are speaking of “elastic money,” which really is just book-entries, then that is also truly confined to the Federal Reserve. If you are including in your definition of money all government borrowings, then that is the prerogative of the Treasury. Now, if you are talking about leveraged book-entries where a bank is lending out money so two accounts will show an entry for the same money or close to it, then that is private banking lending. The definition is fluid. It depends greatly upon what you are calling money.

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