A central bank’s balance sheet reflects its role as the ultimate monetary authority. The liabilities of the central bank form the foundational baseline money of the economy, known as High-Powered Money or the Monetary Base (B). [1]

The monetary base consists of physical currency held by the public and digital reserve balances parked by commercial banks at the central bank. The plain-text accounting identity is structured as follows:

Monetary Base = Currency in Circulation + Total Commercial Bank Reserves

During expansionary policy phases (such as QE), the central bank purchases long-term bonds on the open market, increasing its asset portfolio while creating an equivalent volume of digital bank reserves on the liability side of its balance sheet. This process expands the high-powered money base to lower long-term market borrowing costs. [1, 2, 3]