The Payment System Puts a Floor on the Fed’s Balance Sheet

2026

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AI-generated summary

1) This paper argues that the payment system's demand for reserve balances effectively puts a floor on the Federal Reserve's balance sheet size, and explores policy options to manage this floor.
2) * Analyzes how the payment system's need for reserve balances influences the Federal Reserve's balance sheet size.
* Discusses potential policies to reduce the required reserve balances, including temporary open market operations, liquidity savings mechanisms, and tiered remuneration of reserves.
* Examines the trade-offs and challenges associated with managing reserve balances and the Fed's balance sheet.
3) Reserve balances, payment system, Federal Reserve, balance sheet, monetary policy

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