chapter 10 appendix the fed’s balance sheet and the monetary base
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Chapter 10Appendix
The Fed’s Balance Sheet
and the Monetary Base
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In this appendix, we look closer at the Fed’s balance sheet – its assets and liabilities, and how changes manipulate the money supply.
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Topics include:
•Assets
•Liabilities
•Monetary Base
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The Federal Reserve’s Balance Sheet
Table 1 Consolidated Balance Sheet of the Federal Reserve System ($ billions, as of June 30, 2013)
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The Federal Reserve’s Balance Sheet: Assets
• The assets of the Fed include:─ Securities: U.S. Treasury bills and bonds that the
Federal Reserve has purchased in the open market.
─Discount loans: Loans to member banks, referred to as borrowings from the Fed or borrowed reserves.
─Gold and SDR certificate accounts: Special drawing rights (SDRs) replace gold in int’l financial transactions.
─ Coin: Treasury currency held by the Fed.
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The Federal Reserve’s Balance Sheet: Assets
• The assets of the Fed include:─ Cash items in process of collection: checks in the
process of clearing through the Fed system.─Other assets: buildings, office equipment, and
assets denominated in foreign currencies.
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The Federal Reserve’s Balance Sheet: Liabilities
• The liabilities of the Fed include:─ Federal Reserve notes outstanding: currency in
circulation.─ Reserves: bank assets held by the Fed, payable
on demand.─ U.S. Treasury deposits: The Treasury uses the Fed
as its bank.─ Foreign/other deposits: Non-Treasury deposits
(foreign govts, World Bank, FDIC, etc.).
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The Federal Reserve’s Balance Sheet: Liabilities
• The liabilities of the Fed include:─Deferred-availability cash items: the liability
arising from the check-clearing process.─Other Federal Reserve liabilities and capital
accounts: Any liability of the Fed not listed in the other accounts.
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The Monetary Base
Table 2 Summary Factors Affecting the Monetary Base
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The Monetary Base
The monetary base is the sum of:1.Federal Reserve notes outstanding (Fed liability)2.Bank deposits or Reserves (Fed liability)3.Treasury currency in circulation (Treasury liability)Often called high-powered money, an increase in the monetary base will lead to an increase in the money supply.
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The Monetary Base
The monetary base is the sum of:1.Federal Reserve notes outstanding (Fed liability)2.Bank deposits or Reserves (Fed liability)3.Treasury currency in circulation (Treasury liability)Items 1. and 3. are often lumped together and referred to as currency in circulation.
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The Monetary Base
The monetary base can also be described by the sources of the base:MB = Securities + discount loans + gold and SDRs + float + other Federal Reserve assets + treasury currency = Treasury deposits - foreign and other deposits - other Federal Reserve liabilities and capital