<p>Yes, it does. Maturing bonds held by the Federal Reserve are repaid by the Treasury, just as they repay any other creditor.</p>

<p>However, the cost to the Treasury of doing this is a policy decision of the Fed and can be effectively zero. It’s critical to understand that the Fed’s excess profits are paid to the Treasury. Last year, <a href="https://www.federalreserve.gov/newsevents/pressreleases/other20200110a.htm" rel="nofollow noreferrer">they paid $54.9 billion to the Treasury</a>. As a result, the vast majority of the money that the Treasury “pays back” to the Fed flows right back to the Treasury. </p>

<p>To dig a little more into the dynamics, the Fed often decides to reinvest the repaid principal on a bond, so as to not reduce the aggregate money supply (you can think of this as choosing to keep rates lower). When they do this, the actual impact on the Treasury is approximately zero. If they choose not to do so (if they choose to allow borrowing costs to rise), the demand for Treasury debt is reduced accordingly, and the Treasury’s borrowing costs will rise. </p>

CC BY-SA 4.0
2020-06-14T20:16:04.510Z
Oh wow.  I never considered that the Fed’s profits were paid back to the Treasury.  This means that all the bonds on the Fed’s balance sheet are effectively 0% interest.  Does Japan and the ECB also pay their profits on their private sector bonds back to the government?
Keith Knauber
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2020-06-15T01:49:41.823Z
@KeithKnauber Yes, the BoJ repays their Treasury, and the ECB pays profits to member states' central banks, all of which to my knowledge pass that on to their national treasuries.
dismalscience
CC BY-SA 4.0
2020-06-15T01:51:53.130Z
Wow, so private enterprise gets a raw deal.  IMO that goes a little too far concentrating power in the hands of government.
Keith Knauber
CC BY-SA 4.0
2020-06-14T02:57:04.843Z
2020-06-14T02:57:04.843Z
dismalscience
<p>I'm getting confused about how exactly does money being created by the Fed.</p>

<p>From investopidia.com:</p>

<pre><code>The Fed could initiate open market operations (OMO), where it buys and sells Treasurys to inject or absorb money.
</code></pre>

<p>If the Fed holds the Treasurys until maturity doesn't it need to be paid back the par? So how exactly does extra money being created?</p>

<p>Thanks</p>

CC BY-SA 4.0
2020-06-13T16:34:05.807Z
You’ve asked seven or eight questions, some of which have been answered before. I’d recommend narrowing this to a single question that hasn’t yet been answered.
dismalscience
CC BY-SA 4.0
2020-06-13T17:25:23.907Z
To amplify the previous comment, you literally have two questions in your question title.
Brian Romanchuk
CC BY-SA 4.0
2020-06-13T20:40:10.490Z
You reduced the number of questions in the text, but the title is still two questions.
Brian Romanchuk
CC BY-SA 4.0
2020-06-13T20:48:06.730Z
Sorry, corrected
user3921
<money-supply><federal-reserve><debt><quantitative-easing>
Does the government ever pay back its debt from the OMO to the Fed?
user3921
# Does the government ever pay back its debt from the OMO to the Fed?

(Asked by: username_0 on 2020-06-13)

I'm getting confused about how exactly does money being created by the Fed.
From investopidia.com:
The Fed could initiate open market operations (OMO), where it buys and sells Treasurys to inject or absorb money.

If the Fed holds the Treasurys until maturity doesn't it need to be paid back the par? So how exactly does extra money being created?
Thanks

**Tags:** money-supply, federal-reserve, debt, quantitative-easing

> **Comments:**
> **username_1**: You’ve asked seven or eight questions, some of which have been answered before. I’d recommend narrowing this to a single question that hasn’t yet been answered.  
> **username_2**: To amplify the previous comment, you literally have two questions in your question title.  
> **username_2**: You reduced the number of questions in the text, but the title is still two questions.  
> **username_0**: Sorry, corrected  

---

## 1 answers

### Answer by username_1 on 2020-06-14. Score: 1 | Accepted answer

Yes, it does. Maturing bonds held by the Federal Reserve are repaid by the Treasury, just as they repay any other creditor.

However, the cost to the Treasury of doing this is a policy decision of the Fed and can be effectively zero. It’s critical to understand that the Fed’s excess profits are paid to the Treasury. Last year, [they paid $54.9 billion to the Treasury](https://www.federalreserve.gov/newsevents/pressreleases/other20200110a.htm). As a result, the vast majority of the money that the Treasury “pays back” to the Fed flows right back to the Treasury.

To dig a little more into the dynamics, the Fed often decides to reinvest the repaid principal on a bond, so as to not reduce the aggregate money supply (you can think of this as choosing to keep rates lower). When they do this, the actual impact on the Treasury is approximately zero. If they choose not to do so (if they choose to allow borrowing costs to rise), the demand for Treasury debt is reduced accordingly, and the Treasury’s borrowing costs will rise.

> **Comments:**
> **username_3**: Oh wow.  I never considered that the Fed’s profits were paid back to the Treasury.  This means that all the bonds on the Fed’s balance sheet are effectively 0% interest.  Does Japan and the ECB also pay their profits on their private sector bonds back to the government?  
> **username_1**: @KeithKnauber Yes, the BoJ repays their Treasury, and the ECB pays profits to member states' central banks, all of which to my knowledge pass that on to their national treasuries.  
> **username_3**: Wow, so private enterprise gets a raw deal.  IMO that goes a little too far concentrating power in the hands of government.  

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