How to cut the interest cost of bank reserves – and how not to do it
William Allen says setting required reserves is not a straightforward decision for the Bank of England
Last year, the European Central Bank eliminated the payment of interest on the minimum reserves banks are required to hold with their national central bank). It has now been proposed that UK banks should hold a minimum percentage of reserve balances at the Bank of England, which would be unremunerated. This device would reduce the government’s debt interest costs, which have been greatly increased as a result of the various quantitative easing programmes from 2009–21. At a time of extreme
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