How are U.S. Dollars issued?

U.S. Dollars have two forms, physical cash and balances at the Federal Reserve.

The Federal Reserve issues money to purchase financial assets. The Fed then owns these assets. They are the Fed’s reserves. They are listed on the Fed’s balance sheet.

U.S. Dollars are issued whenever the Federal Reserve buys an asset. These assets are mostly treasury bonds or collections of mortgages. When the Fed buys these debts, they then receive any payments made on those debts.

The Federal Reserve publishes reports on this information for the public. It is easily accessible online:

Balances at the federal reserve can be swapped for cash and vice versa. When a balance is redeemed for cash, new money is printed. When cash is returned to the bank, money is destroyed. The Fed could also recycle cash if it chooses.

The Federal Reserve operates similar to any other bank, but their role can be confusing, because their issued asset(U.S. Dollars) is used as reserves by the rest of the banking system, while the Fed uses diverse public and private assets for its own reserves.

Private sector banks issue account balances, when they make loans or accept deposits, and redeem those balances using federal reserve dollars held in reserve.

The Federal Reserve operates under public mandate following three primary programs:

  • Open Market Operations
  • Discount Rate Lending
  • Reserve Requirements

These programs determine the actions taken by the federal reserve, and stipulate rules followed by other banks. These programs are described in detail on the Fed’s website:

All of the assets used in modern banking are created or resolved(extinguished) through contractual legal processes. You experience this process when you get a mortgage or other loan, and then repay the loan over time.

U.S. Dollars are the legally accepted form of payment for taxes or other legal debts.