Tag Archives: Interest on reserves

The Board of Governors of the Federal Reserve System is requesting comment on the proposal to lower the interest rate on excess balances of eligible institutions that hold a very large proportion of their assets in the form of reserves—i.e., on balances of ‘The Narrow Bank.’ The document states that [t]he Board is concerned that [Pass-Through Investment Entities] PTIEs, by maintaining all or substantially all of their assets in the form of balances at Reserve Banks and having the ability...

The Board of Governors of the Federal Reserve System is requesting comment on the proposal to lower the interest rate on excess balances of eligible institutions that hold a very large proportion of their assets in the form of reserves—i.e., on balances of ‘The Narrow Bank.’ The document states that [t]he Board is concerned that [Pass-Through Investment Entities] PTIEs, by maintaining all or substantially all of their assets in the form of balances at Reserve Banks and having the ability...

In an NBER working paper and a column on VoxEU, Michael Bordo and Andrew Levin make the case for central bank issued digital currency (CBDC). Bordo and Levin favor an account-based CBDC system (managed or supervised by the central bank) rather than central bank issued tokens in the blockchain. They emphasize the Friedman rule and the fact that interest paying CBDC affords the possibility to satisfy the rule: These … goals – … a stable unit of account and an efficient medium of exchange –...

On his blog, John Cochrane reports about a Hoover panel including him, Charles Plosser, and John Taylor. Cochrane focuses on the liability side. He favors a large quantity of (possibly interest bearing) reserves for financial stability reasons. Plosser focuses on the asset side and is worried about credit allocation by the Fed, for political economy reasons. Taylor favors a small balance sheet. Cochrane also talks about reserves for everyone, but issued by the Treasury.

On his blog, Ben Bernanke discusses the merits of the Fed’s strategy to slowly reduce the size of its balance sheet to pre crisis levels. Bernanke suggests that this strategy should be reconsidered: First, the large balance sheet provides lots of safe and liquid assets for financial markets. This might strengthen financial stability. (DN: In my view, there are also reasons to expect the opposite.) Second, a larger balance sheet can help improve the workings of the monetary transmission...