Title
Reserve Ratios: A Proposal For Change
Abbreviated Journal Title
J. Macroecon.
Keywords
Economics
Abstract
The paper addresses the problem of Fed control of the money supply and the inherent instability of a fractional reserve banking system which Friedman covered in A Program for Monetary Stability. While Friedman proposed a 100 percent reserve requirement as a solution, this work suggests a change from imposing legal reserve ratios on specific liabilities to one of imposing them on total bank liabilities. Reserve ratios are compared to tax rates. Friedman's proposal is to increase the tax rate to 100 percent on specific liabilities and pay interest on reserve balances at the Fed. The proposal of this paper is to keep the tax rates (present reserve ratios) but change the tax base. It is shown that the Fed would gain control over the maximum expansion of banks, but would lose direct control over specific liabilities. The Fed would not tax some liabilities and subsidize others. The Fed could concentrate on setting the tone of the money market and allow the public to use whatever set of bank liabilities it desires as money without specific penalty.
Journal Title
Journal of Macroeconomics
Volume
8
Issue/Number
4
Publication Date
1-1-1986
Document Type
Article
Language
English
First Page
479
Last Page
484
WOS Identifier
ISSN
0164-0704
Recommended Citation
Day, A. Edward, "Reserve Ratios: A Proposal For Change" (1986). Faculty Bibliography 1980s. 484.
https://stars.library.ucf.edu/facultybib1980/484
Comments
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