In the same way that individuals and companies settle transactions using accounts at commercial banks, banks themselves have accounts at the central bank that they use for clearing purposes. Quantitative easing – or tightening – refers to central bank actions that expand or contract the supply of funds held in these reserve accounts.

In operating monetary policy, central banks can alter either the price of money - interest rates - or the quantity of reserves. In recent years interest rate changes have been the dominant tool but historically policy-makers also used quantitative actions to achieve their goals.