Mandatory reserve policy and practice and digital currencies of central banks

   The issues of required reserves application, which is a traditional instrument of monetary policy, which has other relevant effects for regulators, have been studied. Required reserves act as a liquidity buffer that not only limits credit capacity of financial intermediaries, but can also act as a buffer in times of crisis. Regulators use different models of required reserves application to correct issues in national systems, as well as to obtain the supervised institutions’ response to changes in the models’ parameters. The modern period is characterized by new challenges such as implementation of central bank digital currencies into monetary circulation. At present, the issues of monetary circulation functioning, macroeconomic equilibrium, and financial stability are quite acute, and the search for effective instruments is an important managerial task, which this study is aimed at solving.

   The purpose of the study is twofold – to analyze the current practice of diverse use of required reserves and to investigate their possible application in the large-scale expansion of the third form of central bank money.

   The possible setup of required reserves and microprudential and macroprudential effects of their application have been studied. The data of the International Monetary Fund, as well as the Central Bank of the Russian Federation and individual central banks, generalization method, and comparative economic analysis were used. Considering the cross-border nature of financial institutions’ activities, the conclusion has been made about possible transformation of required reserves with the further expansion of the use of digital currencies. It has been recommended to modify their setting as an instrument of capital control.

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