<p>As you point out excess reserves have indeed been going down since around 2014.</p>

<p><a href="https://i.sstatic.net/Hkpim.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Hkpim.png" alt="reserve balances with Fed"></a></p>

<p>The Federal Reserve doesn't force member banks to withdraw excess reserves, although the Fed can provide incentives to do so by <a href="https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm" rel="nofollow noreferrer">lowering interest rates on those reserves</a>. In other words, excess reserves have been going down because member banks have chosen to withdraw reserves to, for example, purchase financial assets.</p>

CC BY-SA 4.0
2021-08-25T13:22:51.667Z
Doesn't money used to purchase financial assets end up back in the Federal Reserve? But I suppose then it's no longer "excess"
Criticize SE actions means ban
CC BY-SA 4.0
2019-09-21T00:30:52.550Z
2019-09-21T00:30:52.550Z
Kent Shikama
<p>Over the last few years, the amount of currency is circulation (and the corresponding liability on the Fed's balance sheet) has been growing; however, the asset side of the BS hasn't increased. By basic accounting, that means one of the other liabilities (either required reserves or excess reserves) has been shrinking.</p>

<p>I'm guessing the growth in currency volume has been offset by declining excess reserves, but I don't understand the mechanics of that. Does the fed send $100 bill to a bank and then reduce that banks' excess reserves by 100 dollars? If so, how does the Fed decide which banks' account will be reduced by how much?</p>

<currency><federal-reserve><reserve-requirement-ratio>
How does the Federal Reserve reduce "excess reserves"?
Walter
# How does the Federal Reserve reduce "excess reserves"?

(Asked by: username_0 on 2019-09-20)

Over the last few years, the amount of currency is circulation (and the corresponding liability on the Fed's balance sheet) has been growing; however, the asset side of the BS hasn't increased. By basic accounting, that means one of the other liabilities (either required reserves or excess reserves) has been shrinking.

I'm guessing the growth in currency volume has been offset by declining excess reserves, but I don't understand the mechanics of that. Does the fed send $100 bill to a bank and then reduce that banks' excess reserves by 100 dollars? If so, how does the Fed decide which banks' account will be reduced by how much?

**Tags:** currency, federal-reserve, reserve-requirement-ratio


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## 1 answers

### Answer by username_1 on 2019-09-21. Score: 2

As you point out excess reserves have indeed been going down since around 2014.

[![reserve balances with Fed](https://i.sstatic.net/Hkpim.png)](https://i.sstatic.net/Hkpim.png)

The Federal Reserve doesn't force member banks to withdraw excess reserves, although the Fed can provide incentives to do so by [lowering interest rates on those reserves](https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm). In other words, excess reserves have been going down because member banks have chosen to withdraw reserves to, for example, purchase financial assets.

> **Comments:**
> **username_2**: Doesn't money used to purchase financial assets end up back in the Federal Reserve? But I suppose then it's no longer "excess"  

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