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Foreign Demand for US Currency and the Fed's Balance Sheet
The Federal Open Market Committee (FOMC) has recently stated that “it intends to continue to implement monetary policy in a regime [with] an ample supply of reserves.”1 In other words, the Fed is expected to maintain a large balance sheet instead of shrinking it back to precrisis levels. To put matters into perspective, the Federal Reserve’s total liabilities have more than quadrupled since the onset of the financial crisis, amounting to about $4.1 trillion in the fourth quarter of 2018. Currently, around three quarters of these liabilities are split equally into bank reserves and currency in circulation ... (full story)