When a country's central bank buys that same country's government securities, is this exactly equivalent to printing money?

There seems to be no agreement on this.

Federal Reserve FAQ:

Is the Federal Reserve printing money in order to buy Treasury securities?


Carlo Cottarelli (2017, Ch. 7 "Printing money"):

central banks, by printing money, can help governments spend more than they collect in taxes. The difference (the deficit) can be bridged by borrowing not from private savers but from the central bank, primarily through the central bank’s purchase of government securities. Public debt increases, but if the securities are held by the central bank, any interest paid to it goes back to the government, which receives its profits even in countries where the government formally does not own the central bank. In other words, the portion of public debt held by the central bank is not to be regarded as real debt, at least not in the immediate future. This is essentially what has happened to varying degrees in many advanced countries, which have continued to run sizable deficits since 2008.

Who is correct? (Or, why the seeming disagreement?)

Concrete example: Say John is hired to mow the White House lawn for \$100. What then is the difference between the following two scenarios?

  1. The US Treasury prints a \$100 note, then uses it to pay John.
  2. The US Treasury issues a \$100 bond that the Fed buys, then uses the \$100 deposited in its account to pay John.

5 Answers 5


I don't know if you are aware that you are using the word "print" abusively but:

The U.S. Treasury controls the printing of money in the United States. However, the Federal Reserve Bank has control of the money supply through its power to create credit with interest rates and reserve requirements.

Source : https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp

Thus both are correct. Clearly a CB does not increase the money supply by creating credits in order to buy governments securities.

It does so with other goals in mind, such as forging economic cycles, maintaining financial stability, reconfiguring the debt market and/or stimulating money multipliers in the national economy.

A CB (theoretically)(and indirectly) buys government securities in an inflation-neutral manner $\iff$ no money printed $\iff$ it uses the existing "stock of (scriptural) cash".

The difference between your two scenarios is the notion of debt. Strongly putting aside the fact that your ex-nihilo first scenario literally makes no sense without a credit underlier.

  • $\begingroup$ That being said this question should be devided into many sub questions since it makes a lot of confusions e.g. money printing (Treasury's prerogative) vs credit creation (FED's), etc. $\endgroup$
    – keepAlive
    Aug 26, 2019 at 8:36
  • $\begingroup$ Any question @user1180576 ? $\endgroup$
    – keepAlive
    Oct 17, 2019 at 11:31
  • $\begingroup$ "print" usually refers to money creation and not the physical printing of notes, which can be done by anyone with a sufficiently good printer and a legal mandate to do so. $\endgroup$ Oct 1, 2021 at 13:58

Not exactly. It is a manipulation of bank reserves. These reserves do not necessarily enter into circulation. For example, look at the data on excess reserves throughout QE. Expansionary policy exploded reserves but much of the money 'created' during QE did not enter into circulation and we maintained low, stable inflation despite operating at the ZLB for 7(ish) years.

edit -- A more straightforward answer: No. One of these increases cash in circulation and the other does not.


I think that although the Fed is not actually printing money, it is creating money by increasing bank's reserves.


Definition of M0 money or monetary base or base money:

M0 = currency + reserve balances

See Fed H.4.1 release:


where Fed actively supplies reserve balances to banks using factors on its balance sheet that supply reserve balances, including U.S. Treasury security assets held outright, and Fed must respond to factors that absorb reserve balances, including currency in circulation.

Prior to 2008 Fed held securities roughly equal to currency in circulation which means Fed would purchase U.S. Treasuries to offset the average increase of currency withdrawn from the banking sector. I call this "Fed services the currency drain." This can be shown by a FRED plot of currency and U.S. Treasuries held outright.

The same open market dealer mechanism is used when Fed makes Large Scale Asset Purchases or so-called Quantitative Easing except Fed does this not to offset the currency drain, and provide minimal reserves balances to banks, but rather to inject reserve balances into M0 and transaction deposits into the M1 money supply.

Concrete example: Say John is hired to mow the White House lawn for $100.

What then is the difference between the following two scenarios?

  1. The US Treasury prints a 100 note, then uses it to pay John.
  1. The US Treasury issues a 100 bond that the Fed buys, then uses the 100 deposited in its account to pay John.

How John gets paid initially is not relevant because he can easily make portfolio allocation decisions to hold either currency or bank deposits or Treasuries or other non-liquid assets at will very rapidly after the fact. What matters is the portfolio allocation decisions in markets and the government institutions making monetary policy and fiscal decisions. If the market sectors demand more liquidity in terms of currency, bank deposits, and Treasury securities then Congress can authorized deficit spending to provide more Treasuries and Fed can only do more open market operations or discount lending to provide liquid assets.


Both are right. the FED is indeed not printing anything; i assure you no green notes were made in this process. it's all electronic and the accounting checks out of course. the first part of the comment you highlight is a big shortcut, the second which deals with seigniorage is more in tune with reality so let's start with that. The Fed has a around 4T of interest yielding instruments on it's own balance sheet and thus it does receive cash interest for those (the coupons that come with them). this money is then partially sent to states/federal level in the US. in switzerland for example the cantons get everything. so in this sense, the CB's actions have resulted in the generation of cash but you can see that 1. the amount is a few %'s of what was issued initially and second, it takes a lot of time and ifs and buts for these few %s to find their way into the real economy, hardly helicopter money. Now that being said let's go back to the first part of the paragraph,even if the fed wasn't there to buy them there is so much money going around these days that we would have easily found another buyer for these securities in exchange of an interest rate that would only marginally be higher (a rule of thumb from chair bernanke was that QE resulted in a reduction of 1% to the term premia) http://archivesofeconomichistory.com/webdata/magaz/020514121439VolumeXXIII_No1_2011.pdf


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