Are Bank Reserves Really Used or Required?
Executive Summary
- Economists often talk about the importance of banking reserves.
- How much do regulators and central banks actually enforce rules around reserves?
Introduction
Reserves at banks are often referred to in order to try to make it sound like banks are not creating money with an accounting entry when in reality they are highly flexible requirements that the banks can meet with very little effort. They are also conjured from nothing by the Federal Reserve. This is explained in the following quotation.
“The Federal Reserve operates in a way that permits banks to acquire the reserves. They need to meet their requirements from the bank the money markets along as they’re willing to pay the prevailing price. The federal funds rate for borrowed reserves. Consequentially, reserve requirements currently play a relatively limited role in money creation in the United States. As the Fed will provide the necessary reserves by making them available at the federal funds rate. The banks borrow from the Fed at a low interest rate and extend credit to their customers at a higher rate. Where the sleight of hand comes in is that the Fed itself creates the reserves out of thin air. These reserves are not real money kept in the commercial bank for paying depositors, they exist only as liabilities on the Federal Reserve Bank’s books. Pierre maintains that the rules accounts kept at the Federal Reserve Bank are just a system for keeping track of how much money commercial banks create. Pierre goes on to say, number banks do not physically transfer a percentage of their demand deposit account balances to their reserve accounts at their Federal Reserve branch. “I believe these accounts were designed to further the parents by a gigantic system of reserves mandated by the Federal Reserve System to force prudent banking.”
Source: The Web of Debt
https://www.amazon.com/Web-Debt-Shocking-Truth-System/dp/0983330859
This is also explained in the following quotation:
“The truth is the opposite of the textbook model. In the real world banks make loans independent of reserve then during the next accounting period borrow any needed reserves. The imperatives of the accounting system, as previously discussed, require the Fed to lend the banks whatever they need.”
Source: Soft Currency Economics
http://moslereconomics.com/wp-content/uploads/2018/04/Soft-Curency-Economics-paper.pdf
Reserve Requirements as a Distraction From Money Created From Think Air
Reserve requirements, as they are very small and little enforced muddy the water on how money is created by banks. This is purposeful on the part of the banking industry.
This yet another magic trick performed by private banking. Repeatedly when one looks at items held up by the private banking industry to be some type of limit or control, the item turns out to be nothing. Furthermore, banks have driven towards even lower levels of reserves to be kept.