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Ricardo Reis - London School of Economics
Thursday 12 September 2024, 01:00pm - 02:30pm

The optimum quantity of banks’ money

Abstract:

What is the optimal supply and remuneration of digital money by the central bank when access is intermediated by banks that are not perfectly competitive? In the data, the interest on bank deposits is lower than both the interest rate the central bank pays on banks’ deposits, and the short-term interest rate for private investment. This paper shows that this does not imply that money demand is not satiated nor that the quantity of money is inefficient. The paper shows that satiation and efficiency may not be the same, and that different frictions that drive the interest rate spreads can imply one but not the other. In theory, a well-designed remuneration of reserves can achieve efficiency. In practice, we characterize some events of an optimal remuneration of reserves in the US data.

   
   
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