<p>One of the Federal Reserve's (the Fed) primary policy tools is the Federal Open Market Committee (FOMC). Through open market operations the Fed can buy or sell securities on a secondary market. By buying securities they bring new money into circulation, by selling securities they take money out of circulation. 
Thus the Fed has a direct influence on the so called monetary base (M0, consisting of currency in circulation and reserves held by banks at the Fed).</p>

<p>It is true that the Fed cannot take the $-bills out of your pocket, but they don't have to. The Fed trades in securities, and every security has a price. Hence, if the Fed wants to take money out of circulation they "buy" dollars, by selling securities. At the market price there will by definition be people who are willing to give their money to the Fed in return for securities.</p>

<p>The value of money is determined by numerous factors beyond the monetary base (e.g. the money supply M1,M2,M3..., exchange rates) and is a concept harder to grasp, because value can be defined in various ways (as opposed to the "price" of money). But I think that goes beyond your question.</p>

CC BY-SA 3.0
2017-01-06T13:50:29.433Z
2017-01-07T20:33:49.863Z
2017-01-07T20:33:49.863Z
chris759
<p>Isn't MMT (<a href="https://www.investopedia.com/modern-monetary-theory-mmt-4588060" rel="nofollow noreferrer">https://www.investopedia.com/modern-monetary-theory-mmt-4588060</a>) the theory that the US Federal Government (seemingly all branches) and the Federal Reserve currently operate under?  How else could anyone justify deficit spending of the magnitude we are seeing and have seen for years? The real question is how is money in circulation destroyed.  That would be through default.  Somebody takes the loss.</p>

CC BY-SA 4.0
2023-01-26T16:32:31.623Z
2023-01-26T16:32:31.623Z
EducatedGuest
<p>Except of course the Fed actually CAN take the $-bills out of your pocket! They have a department called the Internal Revenue Service that does exactly this: extract money from circulation. The revenue from taxes is debited from the money supply at a pace that roughly matches the rate at which the Fed credits readily-liquidable accounts with new money at the direction of Congress through appropriations. But the two processes are not linked.</p>

CC BY-SA 4.0
2022-05-17T04:36:30.080Z
This doesn't quite seem to be correct - The IRS isn't part of the Fed.
RegressForward
CC BY-SA 4.0
2022-05-04T11:29:57.147Z
2022-05-04T11:29:57.147Z
CadeJ
<p>I was <a href="http://This%20being%20the%20%22Quant%22itative%20Finance%20stackexchange,%20I%20thought%20it%20would%20be%20a%20good%20place%20to%20ask." rel="nofollow noreferrer">watching a video</a> about what gives money its value, and they say it's the total number of bills in circulation.</p>

<p>The Federal Reserve can print or remove money from circulation. But if somebody owns that money, they can't just take that money away right?  So how do they take money out of circulation?  Is there a limit on how much they can take out?</p>

CC BY-SA 3.0
2017-01-05T17:12:34.520Z
Central bank selling of government bonds might be seen as the reverse of quantitative easing
Henry
CC BY-SA 3.0
2017-01-06T08:49:12.890Z
The video link in your question is broken.
Mick
CC BY-SA 4.0
2022-10-26T00:29:07.517Z
The IRS belongs to the Treasury NOT the Fed. But yes they also take money "out of circulation" hence dwindling the money supply.
Pete
<federal-reserve>
How does the Federal Reserve remove money from circulation?
leeand00
# How does the Federal Reserve remove money from circulation?

(Asked by: username_0 on 2017-01-05)

I was [watching a video](http://This%20being%20the%20%22Quant%22itative%20Finance%20stackexchange,%20I%20thought%20it%20would%20be%20a%20good%20place%20to%20ask.) about what gives money its value, and they say it's the total number of bills in circulation.

The Federal Reserve can print or remove money from circulation. But if somebody owns that money, they can't just take that money away right? So how do they take money out of circulation? Is there a limit on how much they can take out?

**Tags:** federal-reserve
> **Comments:**
> **username_1**: Central bank selling of government bonds might be seen as the reverse of quantitative easing  
> **username_2**: The video link in your question is broken.  
> **username_3**: The IRS belongs to the Treasury NOT the Fed. But yes they also take money "out of circulation" hence dwindling the money supply.  

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## 3 answers

### Answer by username_4 on 2017-01-06. Score: 5

One of the Federal Reserve's (the Fed) primary policy tools is the Federal Open Market Committee (FOMC). Through open market operations the Fed can buy or sell securities on a secondary market. By buying securities they bring new money into circulation, by selling securities they take money out of circulation.
Thus the Fed has a direct influence on the so called monetary base (M0, consisting of currency in circulation and reserves held by banks at the Fed).

It is true that the Fed cannot take the $-bills out of your pocket, but they don't have to. The Fed trades in securities, and every security has a price. Hence, if the Fed wants to take money out of circulation they "buy" dollars, by selling securities. At the market price there will by definition be people who are willing to give their money to the Fed in return for securities.

The value of money is determined by numerous factors beyond the monetary base (e.g. the money supply M1,M2,M3..., exchange rates) and is a concept harder to grasp, because value can be defined in various ways (as opposed to the "price" of money). But I think that goes beyond your question.


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### Answer by username_5 on 2023-01-26. Score: -1

Isn't MMT (<https://www.investopedia.com/modern-monetary-theory-mmt-4588060>) the theory that the US Federal Government (seemingly all branches) and the Federal Reserve currently operate under? How else could anyone justify deficit spending of the magnitude we are seeing and have seen for years? The real question is how is money in circulation destroyed. That would be through default. Somebody takes the loss.


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### Answer by username_6 on 2022-05-04. Score: -2

Except of course the Fed actually CAN take the $-bills out of your pocket! They have a department called the Internal Revenue Service that does exactly this: extract money from circulation. The revenue from taxes is debited from the money supply at a pace that roughly matches the rate at which the Fed credits readily-liquidable accounts with new money at the direction of Congress through appropriations. But the two processes are not linked.

> **Comments:**
> **username_7**: This doesn't quite seem to be correct - The IRS isn't part of the Fed.  

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