On May 16, 2024, I published an article explaining why The Federal Reserve Bank does not create “money.” They do create reserve balances denominated in dollars, but people cannot use those dollars as money, because banks hold them as reserves.

Understanding the basics of how “money” is created is not just technical jargon. It’s a key tool for you, the layperson, to critically evaluate the statements you hear from media commentators.

What role does The Federal Reserve have in creating “money?” How does “money” creation affect price inflation? Can The Fed control interest rates? And many more questions about things that influence your life.

Grasping the workings of this system will not only enhance your understanding of the world around you but also equip you with the ability to ask pertinent questions about these significant issues. This knowledge makes your financial experiences more comprehensible.

To clarify my previous explanation I have posted on The Free Market Center website a restatement of my explanation of the relationship between The Federal Reserve Bank and your bank.

You will find that publication at Bank Reserves & Account Balances. At the conclusion, I have provided a link to a graphic Presentation about the same subject in a format that I hope you will find helpful.

Please leave questions and comments. Those will help me to edit and improve this explanation.