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It doesn't have to be that way. People could have accounts with the central bank and it could credit their accounts directly, and the banking regulator could ma
by logicchains 4y ago
It doesn't have to be that way. People could have accounts with the central bank and it could credit their accounts directly, and the banking regulator could mandate 100% reserve requirements so that banks themselves couldn't create more money.
- dageshi 4y agoUnless there's a limit on how much can be put into the central bank account this would have an extremely severe impact during a financial crisis. The central bank account would be safer than government bonds, meaning in a flight to safety interest rates on government debt would rise as money drained to the safer central bank account. Exactly the opposite of what you want when you may need government to act urgently and expansively to solve whatever problem has occurred and likely only the elected government has the authority to solve that problem.
- cuteboy19 4y agoThe central bank would have very low interest rates for deposits. It's not even a farfetched idea. Central bank digital currency is exactly this concept implemented in a general way
- dageshi 4y agoInterest rates have no bearing on the issue I raised. During a financial crisis (2008) people don't care about interest rates they care about the safety of their capital.