Draining reserves

Draining reserves

Federal Reserve System's course of action to tighten the money supply by (1) raising a bank's minimum reserve requirements, (2) selling bonds in the open market, (3) raising the rate at which banks borrow from the Fed, or (4) through draw-downs.

Draining Reserves

The practice of a central bank reducing the money supply. Examples of draining reserves include selling Treasury securities (or the equivalent in different countries), raising interest rates at which banks borrow from the central bank or from each other, and increasing banks' reserve requirements. All these measures are designed to reduce the amount of money in circulation in order to combat inflation.