<P> Money creation (also known as credit creation) is the process by which the money supply of a country or a monetary region (such as the Eurozone) is added to . A central bank may introduce new money into the economy (termed "expansionary monetary policy") by purchasing financial assets or lending money to financial institutions . However, in most countries today, most of the money supply is in the form of bank deposits, which is created by private banks in a fractional reserve banking system . Bank lending increases the amount of broad money beyond the amount of base money originally created by the central bank . Reserve requirements, capital adequacy ratios, and other policies are used by the central bank to limit this process . </P> <P> Central banks monitor the amount of money in the economy by measuring monetary aggregates such as M2 . The effect of monetary policy on the money supply is indicated by comparing these measurements on various dates . For example, in the United States, money supply measured as M2 grew from $6.407 trillion in January 2005, to $8.319 trillion in January 2009 . </P> <P> Monetary policy regulates a country's money supply, the amount of broad currency in circulation . Almost all modern nations have central banks such as the United States Federal Reserve System, the European Central Bank (ECB), and the People's Bank of China for conducting monetary policy . Charged with the smooth functioning of the money supply and financial markets, these institutions are generally independent of the government executive . </P> <P> The primary tool of monetary policy is open market operations: the central bank buys and sells financial assets such as treasury bills, government bonds, or foreign currencies from private parties . Purchases of these assets result in currency entering market circulation, while sales of these assets remove currency . Usually, open market operations are designed to target a specific short - term interest rate . For example, the U.S. Federal Reserve may target the federal funds rate, the rate at which member banks lend to one another overnight . In other instances, they might instead target a specific exchange rate relative to some foreign currency, the price of gold, or indices such as the consumer price index . </P>

Who controls the amount of money in circulation