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Banks currently have 2.7 trillion Federal Reserves that they hold at their Federal Reserve account. It's part of the monetary base and these reserves were created when the Fed purchased bonds in their QE program.

What will happen to these reserves? How will they get back to the Fed? How will they be retired and won't they have to be used to pay off the treasury bonds the Fed is holding?

http://research.stlouisfed.org/fred2/series/NONBORRES

That's a link to it.

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  • $\begingroup$ "these reserves were created when the Fed purchased bonds in their QE program": source? $\endgroup$ – VicAche May 15 '15 at 12:04
  • $\begingroup$ newyorkfed.org/research/staff_reports/sr380.pdf p11 tends to say the story is a bit more complicated $\endgroup$ – VicAche May 15 '15 at 12:09
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Reserves are drained (destroyed) when the Fed sells the debt or allows it to be paid off.

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  • $\begingroup$ Hi! Welcome to EC.SE! Thanks for the answer. You could improve it by providing a source or explaining your answer in more detail. $\endgroup$ – jmbejara May 18 '15 at 18:41

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