| How is new currency injected into circulation?

How is new currency injected into circulation?

Currency E asked:


Say the central bank (fed) decides to add more currencies to the economy. How is it injected into circulation? I thought about Fed go buying bonds from the market with the new currency. But then how does Fed control the interest rate effect of the purchase? For example, Fed wants to add 100bn new currencies into the market, then first they have to find 100bn Treasury bills or bonds in the market. Under different liquidity conditions, the 100bn may lower the interest rate by different amount. How does Fed control that?

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Comments

One Response to “How is new currency injected into circulation?”

  1. Scott K on May 30th, 2009 12:05 am

    The fed has a branch that loans money to member banks it’s always available, they call it the window. basically they lower the amount by raising the discount rate and increase the supply by lowering the rate.