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The '100% money' proposal aims at divorcing the creation of money from banking, by requiring 100% reserves on transaction accounts. The public monetary authority would then be the sole issuer of means of payment, while the banks would function as true intermediaries, financing loans with pre‐existing money. This article, building on the works of 1930s economists such as Irving Fisher, presents ten arguments in favour of this reform proposal — arguing that it would, in particular, prevent cumulative variations in the money stock, facilitate monetary control, reduce government intervention in banking, improve public finances, and make money creation more neutral. [ABSTRACT FROM AUTHOR]

Economists have long believed that, absent any public withdrawals of high-powered money, an unregulated, closed banking system can expand its assets and liabilities without encountering any shortage of reserves so long as its members act in concert. Notwithstanding its popularity, this "in-concert overexpansion" doctrine is inconsistent with standard theories of the precautionary demand for bank reserves. Unless these theories are themselves incorrect, concerns that complete removal of legal restrictions on the competitive supply of bank money must result in an unstable or indeterminate bank-money multiplier are misplaced. [ABSTRACT FROM AUTHOR]

Las reservas internacionales constituyen una de las herramientas de que disponen los bancos centrales para proporcionar un seguro de liquidez y hacer frente a contingencias futuras y a cambios repentinos en los flujos de capitales. Este trabajo analiza los factores económicos que explican el comportamiento de las reservas en el caso argentino. Atal efecto, se estiman modelos de VEC (vector de corrección de errores), con datos trimestrales de ese país, que cubren el período 1994-2013. Los resultados muestran que el PIB real y el riesgo país serían los principales determinantes de la volatilidad en las reservas, mientras que otros factores, como los términos del intercambio y los componentes de la balanza de pagos (balanza comercial y cuenta capital y financiera, respectivamente) habrían sido menos importantes. [ABSTRACT FROM AUTHOR]

This article presents a comment on the article "Money Supply Control and Lagged Reserve Accounting." The author examines the ability of the U.S. Federal Reserve to control the money supply under lagged reserve accounting. The author examines how manipulation of the interest rate can impact the demand for money and presents a model that is designed to test how effectively this method of control works. The author's findings suggest that authorities can control the money stock by manipulating that base control.

The article discusses commercial banks and their demand for bank reserve requirements. This research is based on a model that is different from other stochastic methods in that banks are expected to behave differently in regard to how they behave to fluctuations in reserve requirements and how much money banks have available for investing. Bank deposits are treated like random walks and a sample equation is presented of a Bernoulli process for calculating, in dollars, the random walk steps. A set of calculations is presented to demonstrate the expected daily penalty cost, taking into account customer deposits that are in reserve.

The article presents a comparison of the contemporaneous reserve accounting (CRA) and lagged reserve accounting (LRA) methods and the different policies related to both. A theoretical model is used that considers how banks will behave given specific variables like cash in reserve management, the time between bank deposits, money supply, and borrowing by reserve banks. Many calculations are used to demonstrate the uses of CRA and LRA and the actual method for determining the appropriate amount of bank reserves.

The article discusses the money supply and lagged reserve accounting, particularly the motivation behind the system and the results of its early use. It has been suggested that this system of monitoring reserves has led to volatile money market rates and the use of certain open market operations. The impact of policies from the U.S. Federal Reserve on interest rates and the federal funds rate could impact the orientation of the open market operations. The article concludes that the Federal Reserve's reserve requirements have impacted interest rates and the way in which economic equilibrium is achieved.

A microeconomic model of bank demand for borrowed reserves from the Federal Reserve is developed based upon constrained cost minimization. The derived demand function was found to correspond to behavior appropriate to the unknown switchpoint switching regression problem. When estimated, parameters generally conformed to theoretical expectations. The model was also tested for existence of switching regression behavior against a model similar to Goldfeld and Kane. Significance exceeded 99% in all cases. With the advent of reserve intermediate targeting, it appears especially necessary to reinvestigate the behavior determining this important source of reserves. [ABSTRACT FROM AUTHOR]

The 1968 amendment to Regulation D of the Federal Reserve Code permits banks to carry forward one sequential reserve excess or deficiency into the next reserve accounting period. This was intended to reduce the weekly pressure on individual banks to adjust their reserve position. We find, instead, that the carry-forward provision gives individual banks an incentive to alternate weekly between reserve excesses and reserve deficiencies. Thus, the carry-forward provision tends to induce reserve position adjustments even in the absence of changes in the level of deposits. In addition, the carry-forward provision reduces the impact of interest-rate changes on the desired level of excess reserves. [ABSTRACT FROM AUTHOR]

The purpose of this comment (reply) is to point out that Kopecky's argument is based upon a very restrictive interpretation of what it means to impose FRS reserve requirements on nonmember banks and to defend the validity of my test method. Section I presents the most important elements of Kopecky's model (slightly modified by me)—the model which he employs in arguing against my test method. Section II points out the critical assumption upon which Kopecky's argument rests and explains why my test method is valid. Section III contains some final remarks. [ABSTRACT FROM AUTHOR]

The results of most recent econometric studies of the banking sector which employ quarterly data suggest that commercial banks close less than half the gap between their actual and "desired" levels of excess and/or borrowed reserves per quarter. At this rate, the banking system would take a full year to close nine-tenths of the gap. The length of this lag has been regarded as implausible by many researchers. Among the skeptics, many have expressed suspicion of the statistical techniques underlying the estimates. This paper investigates two commonly-proposed statistical sources of bias. The investigation reveals that one of them, temporal data aggregation (averaging over time), does exaggerate the lag. Nonetheless, even after correction for this bias, the estimates indicate a full adjustment period of a quarter or more. The primary purpose this paper is to explain the remaining lag. The major hypothesis of this study is that the lag in the aggregate is caused by lagged interactions among banks in different regions. As this paper demonstrates, when Federal Reserve Member Banks are disaggregated by region, estimated adjustment speeds rise dramatically. Moreover, the lag in the aggregate is well explained statistically by the impact of some regions' reserve adjustments on other regions. The more important of these interregional effects are identifiable and statistically significant, and they are shown to be useful in analyzing the timing of the regional impacts of monetary policy. [ABSTRACT FROM AUTHOR]

The article starts with Haslag's (1998) model of the bank's demand for reserves and reformulates it with a cash-in-advance approach for both financial intermediary and consumer. This gives a demand for a base of cash plus reserves that is not sensitive to who gets the inflation tax transfer. It extends the model to formulate a demand for demand deposits, yielding an Mi-type demand, and then includes exchange credit, yielding an M2-type demand. Based on the comparative statics of the model, it provides an interpretation of the evidence on monetary aggregates. This explanation relies on the nominal interest as well as technology factors of the banking sector. [ABSTRACT FROM AUTHOR]

Money supply control and behavior are importantly influenced by the institutional and legal framework in which money is produced. An important change in that framework was activated on September 12, 1968 when drastically revised procedures for calculating and meeting the Federal Reserve's reserve requirement (Regulation D) were put into effect. The implications of these rule changes have been examined elsewhere; it is the more limited objective of this paper to examine the evidence for what I call the vault cash game. Under the new rules of 1968, reserves eligible for meeting the current week's reserve requirement consist of the current week's average daily deposits at the Fed plus the average daily vault cash held two weeks ago. This provision inadvertently introduces a source of potential reserve adjustment not present under the earlier rules where vault cash was not lagged in the reserve calculation. Although shifting reserves from vault cash to deposits at the Fed does not affect the level of reserves (R), it does affect the volume of reserves eligible for meeting the reserve requirement in the current period (R[sup a]). This occurs because vault cash in the current period is not counted toward the current reserve requirement while deposits at the Fed are. The purpose of the 1968 changes in Regulation D was to improve the reserve adjustment mechanism, and thereby smooth the behavior of the money markets where reserves are traded, and improve the Federal Reserve's control over the relation between reserves and deposits, and hence over the money supply. The particular contribution of lagging vault cash was that its fairly regular monthly cycle then tended to offset the similar monthly cycle in Federal Reserve Float. The vault cash game, however, tends to weaken the Federal Reserve's control over reserves (R[sup a]), hence over the money mechanism. [ABSTRACT FROM AUTHOR]

The analysis of the graduated reserve proposal, the present city-country bank classification system and the uniform reserve plan reveals that none of them would have made control of total demand deposits or the money supply by the Federal Reserve more difficult. The absence of a Federally controlled, single reserve ratio applied to the demand deposits of non-member banks has resulted in a few fairly large errors of prediction, but these may be a function of discontinuous reporting by non-member banks rather than their non-control. The analysis of reserves on time deposits shows that, for shifts in time deposits to be neutralized, the required reserve ratio should be either zero or equal to that on demand deposits, depending upon what one wants to neutralize. But since the effects of changes in time deposits appears predictable, the ratio can be whatever is desired for reasons other than monetary control.
The question of which required reserve plan is optimal thus comes down to the question of equity among institutions. The analysis shows that the present system and the graduated reserve plan, which impose higher reserves against larger banks, reinforce the bias against larger banks that already exists. The different Federal and state reserve requirements impose a bias against member country banks. And reserves required against time deposits represents a bias against commercial banks. [ABSTRACT FROM AUTHOR]

The article examines the impact of monetary policy on commercial bank demand deposits, focusing on the time lag involved between changes in unborrowed bank reserves and changes in demand deposits. A close relationship between changes in bank reserves and earning assets is present from 1954 to 1963. The author tests if changes in demand deposits of the banking system are the result of the change in aggregate unborrowed reserves during the same time period. Virtually no lag in the response of banks to changes in their unborrowed reserves was observed.

Presents domestic financial statistics compiled by the United States Federal Reserve as of October 2000. Reserves, money stock and debt measures; Reserves of depository institutions and reserve bank credit; Federal Reserve Bank interest rates; Reserves and borrowings; Federal Reserve open market transactions; Reserve requirements of depository institutions.

Focuses on the controversy concerning the implementation of the fractional reserve banking in Austria. Advantages and disadvantages of fractional reserve banking; Reasons behind the rejection of fractional reserve banking; Implications of the fractional reserve banking for business enterprises.

This article analyses the effects of involuntary excess reserves (IER) on bankers’ remuneration and the penalty associated with bank risk-taking if discovered. The study finds that IER help conceal tail risks, improves bankers’ performance and remuneration. However, the risks once discovered result in heavy penalties on bankers’ remuneration. The study extends the agency theory to the context where banks hold large IER. [ABSTRACT FROM PUBLISHER]

Purpose The purpose of this paper is to discuss more efficient mechanisms of regulation in the financial system.Design/methodology/approach The authors developed a theoretical two-period model of financial flows (FFs) that considers households, banks, and a social planner.Findings It is important to highlight that different from other studies that do not distinguish between financial crisis and financial instability, the authors assume financial instability does not mean crisis, but represents a deviation in the behavior of the aggregate financial intermediation and in the financial operations of each bank from the equilibrium.Practical implications The practical implication of the model is the proposition of an efficient policy for financial stability based on forward-looking financial regulations.Social implications An important result is that bank failures occur when banks do not maintain sufficient resources to support the liquidity constraint from the interbank market. Another result is that the central bank reacts, via exchange of reserves with the market, to financial instability. This behavior on the part of the central bank is inefficient because the banks will assume that in the case of failure they will be “saved;” thus it creates an adverse incentive (moral hazard) that can amplify the risk over the entire financial system.Originality/value The originality of the model is the proposition of an efficient policy for financial stability based on a forward-looking financial regulation. In this strategy the regulator acts in advance (ex ante) to minimize the mismatch of FFs in relation to the flow balance. This manner of acting is a counterpoint to the financial regulation based on capital requirement. [ABSTRACT FROM AUTHOR]

In the preceding comment, Duggar disagrees with several aspects of our recent article. We shall argue that, in the main, Duggar's criticisms arise from a totally different, and, we think, erroneous conception of the goal of the analysis in our article. As we consider Duggar's objections, we shall attempt to point out where his conception of our work is inaccurate, thereby giving rise to his somewhat misdirected criticism. [ABSTRACT FROM AUTHOR]

Presents charts that illustrate the financial reserves in the United States as of February 1999. Aggregate reserves of depository institutions and monetary base; Money stock, liquid assets and debt measures.

A global game framework of bank runs is used to analyse a bank's choice of its reserve level and short-term interest rate. Higher level of reserves and a lower short-term interest rate would decrease the probability of bank runs. When the bank's reserve policy is transparent, it will hold excess reserves to discourage withdrawals by patient depositors. This inefficiency of excess reserves increases with the proportion of impatient depositors. When the bank has private information about its reserve level, it will follow a more risky strategy of choosing lower reserves and higher early return than what maximizes depositor welfare and increases the probability of bank runs. [ABSTRACT FROM AUTHOR]

The theory of free banking has experienced a great renaissance in recent years. The authors of many articles, books, and doctoral dissertations have made the case for the possibility and [...]

For centuries--even before government guarantees came on the scene--Western payment systems predominantly have used banknotes and demand deposits backed by fractional rather that 100 percent reserves. Explaining the long historical [...]

The Federal Reserve has recently activated its newly acquired powers to pay interest on reserves of depository institutions. The Fed maintains that its new policy increases economic efficiency and intends it to play a lead role in the exit from quantitative easing. This paper argues it is a bad policy that has a deflationary bias; is costly to taxpayers, and that cost will increase as normal conditions return; and establishes institutional lock-in that obstructs desirable changes to regulatory policy. The paper recommends repealing the Fed's power to pay interest on bank reserves. Second, the Fed should repeal regulation Q, which prohibits payment of interest on demand deposits. Third, the Fed should immediately implement an alternative system of asset-based reserve requirements (liquidity ratios) that will improve monetary control and can help exit quantitative easing at no cost to the public purse. Now is the optimal time for this change. [ABSTRACT FROM AUTHOR]

The article presents an economic overview of the reserves and the challenges for monetary policy in the U.S. in 2010. It discusses the reserves trends considering the reserves levels and the factors affecting it along with significant monetary policies conducted by the Federal Reserve Board. It states that the greater the level of excess reserves, the greater the banking system's rate of expanding along with a greater risk of the monetary policy to fall behind the curve.

The buildup of reserves in the US. banking system during the financial crisis has fueled concerns that the Federal Reserve's policies may have failed to stimulate the flow of credit in the economy: banks, it appears, are amassing funds rather than lending them out. However, a careful examination of the balance sheet effects of central bank actions shows that the high level of reserves is simply a by-product of the Fed's new lending facilities and asset purchase programs. The total quantity of reserves in the banking system reflects the scale of the Fed's policy initiatives, but conveys no information about the initiatives' effects on bank lending or on the economy more broadly. [ABSTRACT FROM AUTHOR]

This paper develops a simple model of precautionary foreign reserves in a dollarized economy subject to a sudden stop shock that occurs concurrently with a bank run. By including specific features of the Croatian economy in our model we extend the framework of Goncalves (2007). An analytical expression of optimal reserves is derived and calibrated for Croatia in order to evaluate the adequacy of the Croatian National Bank foreign reserves. We show that the precautionary demand for reserves is consistent with the trend of the strong accumulation of foreign reserves over the last ten years. Whether this trend has been too strong or whether the actual reserves are lower than the optimal reserves depends on the possible reaction of the parent banks during a crisis. We show that for plausible values of parameters, the Croatian National Bank has enough reserves to fight a possible crisis of the magnitude of the 1998/1999 sudden stop with a banking crisis episode. This result holds regardless of the parent banks' reaction. We also show how use of the two standard indicators of "optimal" reserves, the Greenspan-Guidotti and the 3-months-of-imports rules, might lead to an unrealistic assessment of foreign reserves optimality in the case of Croatia. [ABSTRACT FROM AUTHOR]

Through a mathematical programming setup, reserve accounting is shown to be auxiliary to accomplishing monetary policy operating objectives. This article outlines a theoretical way of comparing the potency of open market operations under different reserve accounting procedures. It is shown that if the interest sensitivity of reservable liabilities is greater than the interest sensitivity of reserves, then lagged reserve accounting makes Federal Reserve open market purchases and ‘sells’ of securities more powerful in affecting the federal funds rate. [ABSTRACT FROM AUTHOR]

The article discusses the startling emergence of the Deutsche Mark (DM), the most stable German currency for more than a generation, from 1968-1969 wherein speculators and small savers across Western Europe raced to exchange their currencies for the Deutsche Mark in Germany. The reserves of West Germany's central bank, the Bundesbank, has increased by DM 9.4 million in the first three weeks of November 1968 with DM 7.3 billion arriving in just three days of trading. It also examines the learning curve of DM to give way to a more cooperative understanding of the international monetary system. However, the Social Democrats' vision prevailed the cost of awakening expectations among West German workers, which would not easily be satisfied.

A panel regression gives evidence that more flexibility in Asian exchange rates reduces risk associated with bank borrowing abroad, but deviations from mean exchange rates, and from the renminbi, increase risk. Since the exchange rate regime affects bank behavior and the incentives to hedge, the results broadly support the bank run over the moral hazard view of twin banking and currency crisis. The results suggest that flexibility in exchange rates is required for Asian EMEs, but the flexibility has to be limited, and it depends on more flexibility in the renminbi. This has implications for current global imbalances in reserves and feasible adjustment paths. [ABSTRACT FROM AUTHOR]

The determination of international reserve balance for emerging economies is part of the efforts to strengthen the immunity of these economies to crises. However, there is still evidence on crises even for the countries with large foreign reserves. It has usually been experienced that the countries with greatest need for reserves economize more than others on their holdings since they might underestimate the cost of crisis. In this study, the official international reserves of Turkey are tested against optimality and adequacy. During 1988–2002, the actual reserves fell short of both the optimal and the adequate levels. They are only optimal when the expected cumulative contraction is about 5.2% of real GDP under crisis. However, early evidence from emerging economies and Turkey show that crises hit more heavily. Hence, it is found that the current financial structure in Turkey such as the absence of capital controls and a highly dollarized banking system necessitates more foreign reserves for preventing any future economic and/or financial shocks. [ABSTRACT FROM AUTHOR]

This paper provides a simple, quantitative, net-worth-based approach to assessing the need for central bank capital. It derives a concept of "core capital" (a function of the central bank's operating expenditures and the carrying cost of its international reserves) as the minimum capital needed by a central bank to ensure the credibility of its inflation target. The approach is illustrated with the published accounts of three loss-making central banks and selected accounting entries for a broader sample of central banks. Policy implications are explored. In particular, the paper argues that central bank capitalizations cannot be automatic and require instead a broad policy debate. [ABSTRACT FROM AUTHOR]

Presents charts depicting domestic financial statistics of the United States for the period 2000-2001. Reserves, money stocks and debt measures; Reserves of deposit; Data on Federal Reserve bank transactions; Assets and liabilities of commercial banks in the United States.