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How Central Banks Use Tiered Reserve Remuneration
Description
In Episode 49 of Monetary Policy Explained with Fexingo, Lucas and Luna dig into tiered reserve remuneration—a tool central banks use to encourage lending without cutting the policy rate below zero. They walk through the European Central Bank's 2019 tiering system, which exempted a portion of banks' excess reserves from negative rates, saving the banking sector roughly €4 billion per year. Lucas explains the mechanics: how central banks set a threshold, apply a higher rate to the first chunk of reserves, and a lower (or negative) rate to the rest. Luna asks whether tiering actually boosts lending or just provides a hidden subsidy. The hosts compare it to the Bank of Japan's 2016 three-tier system and preview how the U.S. might use tiering if negative rates ever come up. No fluff—just one concrete policy tool, explained with numbers and real-world examples. If this episode helps you understand central banking better, the show stays ad-free thanks to listener support at buy me a coffee dot com slash fexingo.