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How Central Banks Use Reserve Requirements as a Policy Tool
Description
In Episode 70 of Monetary Policy Explained with Fexingo, Lucas and Luna unpack the forgotten workhorse of central banking: reserve requirements. Once the go-to tool for controlling bank lending, reserve ratios have been sidelined in the US, UK, and Eurozone since the shift to an ample-reserves framework. But they're not dead. The hosts walk through the mechanics, the history of how reserve requirements worked from the 1930s through the 2008 crisis, and the case study of China's 2021-2022 reserve requirement ratio cuts to stimulate lending. They also discuss why the Fed, ECB, and Bank of England now use interest on reserves instead, and whether reserve requirements could make a comeback in a future tightening cycle. A focused, concrete primer on a tool most listeners have heard of but few fully understand.