When the Federal Reserve through its Open Market Desk engages in a transaction under QE or the current balance sheet stabilization (reinvesting maturing securities) with a primary dealer, the direct effect is to increase the dealer’s account with the Fed while decreasing that dealer’s stock of securities. On the other side, absent any offsetting absorbtions (either intentional or autonomous), FRBNY’s balance sheet size increases; with the newly purchased security expanding the asset side while the simultaneous reserve account increases by the matching amount. To some, this has been taken as “money printing.”

There is no money in reserves of this kind. It is nothing more than a strictly financial liability that requires further exertion on the part of the banking system in order to take usable form (money). In other words, nobody can access these reserves and use them in the real economy to obtain goods and services or to invest in real projects. They must be converted into other financial forms first, participating in the pyramid of wholesale schematics as just one liability among many, before they can actively contribute in the real economic structure. That bank “reserves” can only apply to primary dealers further suggests these kinds of limitations – that further chains of liabilities (interbank) beyond primary dealers will be necessary for that conversion from an idle and inert balance with the Fed to something actually useful.

That is the major difference between a eurodollar and bank “reserves”, as the eurodollar sits at the end of useful spectrum, acceptable as forms of payment in global trade and credit funding, while QE’s special byproducts are really quite remote. In fact, QE was never designed to be “money printing” directly, as none other than Ben Bernanke declared at the outset. From January 2009:

Our approach–which could be described as “credit easing”–resembles quantitative easing in one respect: It involves an expansion of the central bank’s balance sheet. However, in a pure QE regime, the focus of policy is the quantity of bank reserves, which are liabilities of the central bank; the composition of loans and securities on the asset side of the central bank’s balance sheet is incidental. Indeed, although the Bank of Japan’s policy approach during the QE period was quite multifaceted, the overall stance of its policy was gauged primarily in terms of its target for bank reserves. In contrast, the Federal Reserve’s credit easing approach focuses on the mix of loans and securities that it holds and on how this composition of assets affects credit conditions for households and businesses. This difference does not reflect any doctrinal disagreement with the Japanese approach, but rather the differences in financial and economic conditions between the two episodes. In particular, credit spreads are much wider and credit markets more dysfunctional in the United States today than was the case during the Japanese experiment with quantitative easing.To stimulate aggregate demand in the current environment, the Federal Reserve must focus its policies on reducing those spreads and improving the functioning of private credit markets more generally. [emphasis added]