Question

Why is currency under Fed's liabilities?

Why is currency under Fed's liabilities?

Homework Answers

Answer #1

Answer.) The Federal Reserve notes outstanding item is the amount of this currency that is in the hands of the public and defined as currency in circulation.  Federal Reserve notes have been the largest liability on the Federal Reserve's balance sheet. The currency component of the money supply, no matter how it is defined, includes only currency in circulation. It does not include any additional currency that is not yet in the hands of the public. The fact that currency has been printed but is not circulating means that it is not anyone’s asset or liability and thus cannot affect anyone’s behavior. Therefore, it makes sense not to include it in the money supply.

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