Re: Reengineering the Fed: A Juried Award for Grad Students

[Doug Henwood <dhenwood@xxxxxxxxx>]

William F. Hummel wrote:

>I don't understand your reference to interest earnings from
>supplying currency.  Typically currency is sold by the Fed to a
>bank that requests it.  The bank pays for it out of its deposit
>at the Fed.  The same basic procedure is followed when a
>depositor draws cash from a bank by writing a check on his
>account.  His account is debited accordingly.  Where does this
>involve interest earnings?

To get the currency, the bank turns over that deposit, or some other asset
like a bond. So the Fed owns something it didn't own before. It invests
that in government bonds, which pay interest, which it wouldn't otherwise
have earned.

Doug