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Monetary base
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==Monetary policy== {{Original research section|date=February 2022}} [[Monetary policy]] is generally presumed to be the policy preserve of reserve banks, who target an interest rate. If control of the amount of base money in the economy is lost due failure by the reserve bank to meet the reserve requirements of the banking system, banks who are short of reserves will bid up the interest rate. Interest rates are set by the reserve bank to maintain an inflation rate which is considered neither too high or too low. This is usually determined using a Taylor Rule. The quantity of reserves in the banking system is supported by the open market operations performed by the reserve banks, involving the purchase and sale of various financial instruments, commonly government debt (bonds), usually using "repos". Banks only require enough reserves to facilitate interbank settlement processes. In some countries, reserve banks now pay interest on reserves. This adds another lever to the interest rate control mechanisms available to the reserve bank. Following the 2008 financial crisis, quantitative easing raised the amount of reserves in the banking system, as reserve banks purchased bad debt from the banks, paying for it with reserves. This has left the banking system with an oversupply of reserves. This increase in reserves has had no effect on the level of interest rates. Reserves are never lent out by banks.
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