> IMO it'd be sensible to let the markets set the interest rate. Actually, markets do set most of the interest rates. The central bank only sets one (to be te

> IMO it'd be sensible to let the markets set the interest rate. Actually, markets do set most of the interest rates. The central bank only sets one (to be technically correct several) specific interest rate. Usually, this rate sets the price for short-term refinancing operations of private banks with the central banks. Obviously, other interest rates are influenced by this rate indirectly. I guess the reason for this approach is that banks can react flexibly to high demand for central bank money (aka cash). For example, if people want to hold more cash suddenly, the central bank will swap cash with good assets from commercial banks (aka printing money) so that they can hand it out to them. With a fixed money supply, interest rates would skyrocket in this case. Just because I want to have more cash rather than see that number on my checking account doesn't make a difference economically and so it should also not influence the interest rate.