How Does the Federal reserve Create the Money Supply We shall now discuss how the central bank control the money supply. In other words we will give you more detail analysis on the mechanism of money supply. For this, we need to discuss the modern banking system such as the the Federal reserve system in U.SHow Does the Federal Reserve Create the Money Supply • We shall now discuss how the central bank control the money supply. In other words, we will give you more detail analysis on the mechanism of money supply. For this, we need to discuss the modern banking system such as the the Federal Reserve System in U.S