How Was the Quantitative Easing Program of the 1930s Unwound?

Outside of the recent past, excess reserves have only concerned policymakers in one other period: the Great Depression of the 1930s. This historical episode thus provides the only guidance about the Fed's current predicament of how to unwind from the extensive Quantitative Easing program. Excess reserves in the 1930s were never actually unwound through a reduction in the monetary base. Nominal economic growth swelled required reserves while an exogenous reduction in monetary gold inflows due to war embargoes in Europe allowed banks to naturally reduce their excess reserves. Excess reserves fell rapidly in 1941 and would have unwound fully even without the entry of the United States into World War II. As such, policy tightening was at no point necessary and likely was even responsible for the 1937-1938 recession.