Discussion Paper
Why Pay Interest on Required Reserve Balances?
Abstract: The Federal Reserve has paid interest on reserves held by banks in their Fed accounts since 2008. Why should it do so? Here, we describe some benefits of paying interest on required reserve balances. Since forcing banks to hold unremunerated reserves would be akin to levying a tax on them, paying interest on these balances is a way to eliminate or greatly reduce that tax and its negative effects.
Keywords: monetary policy; reserve requirements; Interest on reserves;
JEL Classification: E5;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2017-09-25
Number: 20170925