(Long and fairly geeky)
That’s the claim emblazoned on the cover of US academic George Selgin’s 2018 book Floored. It is a big claim by a smart author, who has written many years (often quite sceptically, to say the least) about aspects of central banking. And, for once, I won’t bury my conclusion: I wasn’t convinced.
The “experiment” Selgin is writing about is the decision, implemented at the start of October 2008, to pay (effectively a full market) interest rate on excess reserves (over and above the regulatory minimum the Fed persists in requiring) held by banks in their accounts at the Federal Reserve. The Fed was late to the business of paying interest on these deposit balances (other countries, including New Zealand, had done so earlier). It required Congressional authorisation – itself a somewhat unusual feature – and even having obtained that approval the new regime…
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