Voluntary reserve targets can aid transmission – Fed paper

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Using voluntary reserve targets (VRT) rather than required reserves could help to promote monetary policy transmission, according to a working paper published by the Federal Reserve.

Under VRT, banks are asked to commit to voluntary targets for deposits held with the central bank. By setting interest rates based on the targets, the central bank can encourage positive reserves balances. The system was first trialled by the Bank of England and is now under consideration at the Fed, say authors

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