<Li> This is how the Federal Reserve's high - powered money is multiplied into a larger amount of broad money, through bank loans; as written in a particular case study, "as banks increase or decrease loans, the nation's (broad) money supply increases or decreases ." Once granted these additional funds, the recipient has the option to withdraw physical currency (dollar bills and coins) from the bank, which will reduce the amount of money available for further on - lending (and money creation) in the banking system . </Li> <Li> In many cases, account - holders will request cash withdrawals, so banks must keep a supply of cash handy . When they believe they need more cash than they have on hand, banks can make requests for cash with the Federal Reserve . In turn, the Federal Reserve examines these requests and places an order for printed money with the US Treasury Department . The Treasury Department sends these requests to the Bureau of Engraving and Printing (to make dollar bills) and the Bureau of the Mint (to stamp the coins). </Li> <Li> The U.S. Treasury sells this newly printed money to the Federal Reserve for the cost of printing . This is about 6 cents per bill for any denomination . Aside from printing costs, the Federal Reserve must pledge collateral (typically government securities such as Treasury bonds) to put new money, which does not replace old notes, into circulation . This printed cash can then be distributed to banks, as needed . </Li> <P> Though the Federal Reserve authorizes and distributes the currency printed by the Treasury (the primary component of the narrow monetary base), the broad money supply is primarily created by commercial banks through the money multiplier mechanism . One textbook summarizes the process as follows: </P>

Which of these ultimately controls the money supply in the united states