Are reserves still “special”?

Matthew Osborne and Mathew Sim.

Are central bank reserves still ‘special’?

Historically, reserves have been “special” for several reasons: they are the ultimate means of settling payments between banks; they are the main medium through which central banks make monetary policy decisions “happen”; and crucially, central banks have a monopoly supply. Some of this specialness has now reduced, at least in the traditional sense. But, as this blog post goes on to explain, new liquidity standards suggest a new and important role for central bank reserves, which will create challenges as monetary policy is normalised.  Finally, control over supply of reserves could also be a useful macroprudential policy tool.

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