Balance sheet reduction policy

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Monetary policy.

In relation to monetary policy, balance sheet reduction is the opposite process from quantitative easing.

Balance sheet reduction involves a central bank reducing its holdings of financial assets, and its effect is to decrease the money supply.

The reduction can be achieved by allowing existing holdings to mature ('roll off') without replacing them.

The financial assets concerned are usually central government debt.

Balance sheet reduction is also sometimes known as 'quantitative tightening'.

See also