The Fed and the central banks of other major economies use mechanisms to implement monetary policy that are more or less similar at a high level but which diffe

The Fed and the central banks of other major economies use mechanisms to implement monetary policy that are more or less similar at a high level but which differ in the details. Giving a meaningful answer to your question requires looking at some of those details. First, the Fed doesn't directly control the rates at which banks borrow and lend among themselves. Nominally, the Fed does offer funding to commercial banks, through it's so-called discount window, but it discourages banks from borrowing from it directly by offering those funds at a rate (called the discount rate) that is higher than prevailing market rates. As a result, no one uses the discount window unless they must, which further reinforces banks' avoidance of it—everybody knows that something has gone terribly wrong if a bank must borrow from the discount window. Ordinarily commercial banks in the United States instead borrow and lend among themselves at a market rate (called the federal funds rate) that the Fed influences by buying and selling treasuries, making less or more cash available for lending in the commercial banking sector. More precisely, the Fed establishes a target federal funds rate—which is now actually a range, not a single number—and then undertakes asset purchases and sales to coax the actual rate into that target range. But the actual rate at which banks borrow and lends among themselves, which is typically called the effective federal funds rate to distinguish it from the target rate, varies from day to day [0]. The difference between the target and effective rates says something about liquidity in the commercial banking sector as well as something about the effectiveness of the Fed's implementation of its monetary policy. In Britain, the Bank of England implements its monetary policy somewhat differently, through a scheme that involves targeting a rate it calls Bank Rate (and which others typically call official bank rate or the base rate) and then paying that rate on the reserves of commercial banks that it holds on deposit, or charging them a penalty rate if they deposit too much [1]. Commercial banks manage their day-to-day reserve levels by borrowing and lending among themselves, and that's what sterling LIBOR purports to measure. Dollar LIBOR purports to measure the rates at which off-shore banks borrow and lend dollars among themselves. Since the substantial dollar holdings of banks outside of US jurisdiction are typically subject to minimal regulation, and in particular are not subject to the Fed's reserve requirements, this rate is somewhat different from the effective federal funds rate. 0. See this page for recent daily effective rates versus the target range: https://apps.newyorkfed.org/markets/autorates/fed%20funds#Chart12 https://apps.newyorkfed.org/markets/autorates/fed%20funds#Ch... 1. See this page for an overview, and the linked "Red Book" for details: http://www.bankofengland.co.uk/markets/Pages/sterlingoperations/monetarypolicy.aspx http://www.bankofengland.co.uk/markets/Pages/sterlingoperati...