Page 337

* As explained in Appendix 1, prior to the commencement of QE, a demand-based ‘corridor’ system of reserves management was in operation, whereby banks would borrow a pre-defined quantity of reserves via repos from the central bank at a rate equivalent to the bank rate. The net cost of holding reserves was thus zero. With QE, however, the banking system was flooded with reserves and banks no longer needed to borrow from the Bank via repos. This means they are being effectively paid by the central bank to hold reserves. This has prompted former Monetary Policy Committee member Charles Goodhart to call for the central bank to stop paying interest on reserves or even charge a tax on such reserves.33 One reason the Bank may be reluctant to take up Goodhart’s suggestion is that there would then be nothing to stop the overnight LIBOR rate falling below 0.5% which is effectively the ‘floor’ set by the Bank for LIBOR. Such a drop would call into question the Bank of England’s control over market interest rates.

Andrew Jackson - Where Does Money Come From - Positive Money pdf from epub  

Andrew Jackson - Where Does Money Come From - Positive Money pdf from epub

Andrew Jackson - Where Does Money Come From - Positive Money pdf from epub  

Andrew Jackson - Where Does Money Come From - Positive Money pdf from epub

Advertisement