2 ms·

What kind of stuff do you think a bank can use reserve assets to buy?

• danielmarkbruce 4y ago
  Treasuries, back from the central bank, or all manner of assets from other banks. It's done every day.
  • imtringued 4y ago
    People don't pay their groceries with treasuries. This is getting circular. Commercial banks sell their treasuries to buy other treasuries? Really?? And where is the money to buy groceries and cause inflation supposed to come from? Come on the answer is so simple you don't need to act stupid. Commercial banks issue deposits against the treasuries and buy more treasuries which they then sell to gain reserves which then lets them issue more deposits to buy treasuries. This is definitely a loop but it has nothing to do with the central bank. The commercial bank could have done the same thing by creating deposits against illiquid treasuries without central bank help but it would endanger the banking system via bank runs. QE basically just turns illiquid treasuries into liquid treasuries, it is basically a duration transformation provided by the central bank so individual banks do not need to take that risk. This by itself can't cause inflation because the type asset changed but not the quantity. You need the government to actually issue more treasuries for inflation to occur and the commercial bank to play along.
    • danielmarkbruce 4y ago
      I didn't mention inflation. It's unclear what the point of this comment is. As mentioned, banks use their central bank account balance for more than just buying/selling treasuries. It's used to settle payments between banks for example. Banks don't tend to buy groceries, but if they did they wouldn't use a treasury as a form of payment. They could use a central bank balance though, if you think about the payment system (US).