# How does the Federal Reserve remove money from circulation?

I was watching a video about what gives money its value, and they say it's the total number of bills in circulation.

The Federal Reserve can print or remove money from circulation. But if somebody owns that money, they can't just take that money away right? So how do they take money out of circulation? Is there a limit on how much they can take out?

• Central bank selling of government bonds might be seen as the reverse of quantitative easing Jan 5, 2017 at 17:12
– Mick
Jan 6, 2017 at 8:49
• The IRS belongs to the Treasury NOT the Fed. But yes they also take money "out of circulation" hence dwindling the money supply.
– Pete
Oct 26, 2022 at 0:29

It is true that the Fed cannot take the $-bills out of your pocket, but they don't have to. The Fed trades in securities, and every security has a price. Hence, if the Fed wants to take money out of circulation they "buy" dollars, by selling securities. At the market price there will by definition be people who are willing to give their money to the Fed in return for securities. The value of money is determined by numerous factors beyond the monetary base (e.g. the money supply M1,M2,M3..., exchange rates) and is a concept harder to grasp, because value can be defined in various ways (as opposed to the "price" of money). But I think that goes beyond your question. • Likewise, when the Fed prints money, it buys securities instead of just giving free money to random people. Oct 26, 2022 at 2:40 Isn't MMT (https://www.investopedia.com/modern-monetary-theory-mmt-4588060) the theory that the US Federal Government (seemingly all branches) and the Federal Reserve currently operate under? How else could anyone justify deficit spending of the magnitude we are seeing and have seen for years? The real question is how is money in circulation destroyed. That would be through default. Somebody takes the loss. Except of course the Fed actually CAN take the$-bills out of your pocket! They have a department called the Internal Revenue Service that does exactly this: extract money from circulation. The revenue from taxes is debited from the money supply at a pace that roughly matches the rate at which the Fed credits readily-liquidable accounts with new money at the direction of Congress through appropriations. But the two processes are not linked.