they hold the bonds. the fed has a balance sheet with whatever assets it holds. the fed just doesn't hold cash. any money it spends is created, any money paid t

they hold the bonds. the fed has a balance sheet with whatever assets it holds. the fed just doesn't hold cash. any money it spends is created, any money paid to it ceases to exist. the fed buys bonds from the treasury department, which must slowly repay them as if the fed were any other bondholder. this provides a mechanism to reverse the creation of money, when bonds the fed holds are redeemed slightly more money than was created will be destroyed. Or they can destroy money by selling bonds on the open market earlier than that.