Yet, the question is worth asking to discuss which authority has the power to credit the private sector with currency, adding to private income–which is what most people mean when discussing, or reproaching, or wishing ‘money printing.’

Sure, the Fed does this when it pays its employees, or buys a new computer system, or pays interest on bank reserves: the employees, the computer supplier, or the bank are credited with currency, adding to their incomes.

But the bulk of the Fed’s monetary operations don’t do this: When the Fed makes loans, or buys securities, the Fed trades currency with financial assets, not adding to the income of the currency recipients. The Fed just modifies private (notably, banks’) balance sheets: holdings of currency increase while holdings of other financial assets fall.

How about the Treasury? When the Treasury pays for its approved expenditures, it credits currency, adding to the income of the private sector. The opposite is true when the private sector pays taxes: currency is transferred to the government, and thus gets out of circulation, while private disposable income is likewise reduced.

Thus, the Treasury has the power to ‘print’ (or ‘unprint’) money through spending and taxing. The Fed does not have the same power.

You may think that the Fed, the central bank of the U.S., has complete control, or at least some control of how many banknotes circulate in the economy. The fact is that the Fed has no power in this.

Banknotes enter in circulation anytime you request a teller machine to supply cash.  The machine debits your bank account and gives you cash.  Banknotes will disappear from circulation anytime someone decides to get rid of cash and deposits it in a bank.

Banks make sure they have an inventory of banknotes to accommodate any net withdrawals of banknotes. When they feel their inventory is excessive they send some banknotes back to the central bank (that will shred them). When they feel their inventory is short of their clients’ needs, banks have extra banknotes sent by the central bank (that will debit the bank’s account at the Fed—If the bank’s account balance is zero, the bank will borrow reserves and then have its account debited). Banknotes could completely disappear from the economy if only everyone felt that all payments could be handled through bank (or credit card) payments. This way, the amount of banknotes in the economy would endogenously go to zero with no decision of the Fed. On the other end of the spectrum, how large the amount of banknotes could go if only everyone decided to increase the use of cash? Very high indeed. But with a limit: when the willingness to hold banknotes is driven by a generalized loss of confidence in bank accounts, the process of conversion from accounts to banknotes could either a) continue until all bank accounts are converted into cash if the central bank decides to lend reserves to all banks (and if the central bank printing press is fast enough to keep pace with the requests) until people calm down and deposit their banknotes back into the banking system; or b) stop when banks fail and lose access to reserves; or c) stop when banks decide to refuse conversion to protect their liquidity; or d) stop when the central bank declares a bank holiday awaiting to restore confidence in the banking system. In no way, it is the Fed that decides the amount of banknotes in circulation.