During the holiday season, when the public’s holdings of currency increase, whatdefensive open market operations typically occur? Why?

During the holiday season, the public's demand for currency usually increases as people withdraw more cash for shopping, travel, and other holiday expenses. This can lead to a decrease in bank reserves, as banks need to provide more cash to meet the demand.

To counteract this, central banks, like the Federal Reserve in the United States, may conduct defensive open market operations. These operations involve the purchase of government securities, such as Treasury bonds, from banks. This injects more cash into the banking system, increasing the reserves that banks have on hand.

The reason for these operations is to maintain stability in the money market. If bank reserves drop too low, it could lead to higher interest rates, as banks would need to compete for a smaller pool of funds. This could slow down economic activity. By conducting open market operations, central banks can ensure that there is enough liquidity in the system to meet the increased demand for cash during the holiday season, while keeping interest rates stable.