Intel Corp (INTC)

[Windsock]

When currency is deposited in a bank, there will be an electronic entry in a back account and the currency is physically placed in a vault. The Fed on the other hand, generates an electronic entry on its books and then transfers the electronic entry to a bond holder, increasing the money supply. It then books the bond as an asset. When the Fed sells the bond the electronic money used to buy the asset just disappears and the money supply decreases.

Old bills are returned to the US treasury in exchange for new bills that were printed as part of its normal operations. The old bills are burned by the Treasury and there is no effect on the money supply, only an exchange of paper.