Stanford economist Darrell Duffie has presented a detailed plan for the Federal Reserve (Fed) to reduce its $6.7 trillion balance sheet, which is now up to 21% of U.S. GDP. The move could involve several steps, including adjusting regulations to make banks feel less pressure to meet liquidity requirements by holding reserves at the Fed, changing its payments systems to reduce the need for day-to-day transactions and creating a tiered system so that banks that accumulate more money at the bank earn less interest. However, if it goes too far, it could cause significant disruptions in the money markets and potentially cause an unwanted contraction in credit.