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by scotty79
1249 days ago
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I guess we are both aware of those mechanisms. We just assign different importance to them. I have a question though... I just found this: https://www.federalreserve.gov/monetarypolicy/reservereq.htm Does that mean that currently US banks don't need to hold any fractional reserve? Or is this about something else similarly named? Does US still have fractional reserve banking? That kind of explains the surge of inflation. I guess all those other mechanisms are way to weak to counteract it. To use your parlance, USA got nuked with money. |
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They still need to maintain some reserves to permit cash withdrawals and certain transfers, and are still incentivised to lend out at a higher rate than the base interest rate the central bank controls (and reserves still count towards the bank capital requirements which are the actual limiting factor on a particular bank's ability to lend). So the central bank still can act to encourage or discourage money being created by lending exactly as before, the banks just don't have an arbitrary reserve target to hit.
It's not a policy which hasn't been adopted much earlier in other parts of the world, or a cause of the current inflation. The UK had no reserve requirement at all during the mostly low inflation period since 2009, and small symmetric reserve targets chosen by the bank where they incurred a penalty for having too many as well as too few reserves between 1980 and 2009 (a period where inflation came down from pre-1980 record highs to an unprecedented long, stable period of low inflation)