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What if central banks stopped remunerating reserves?

The proposal to save governments money by ending interest payments on commercial banks’ reserves is a lot more complicated than some of its advocates suggest. The extreme version could either cause central banks to lose control of monetary policy or result in significant strains for commercial banks and a sharp rise in their lending interest rates. But a more nuanced system of tiered remuneration could offer small fiscal benefits, especially for the UK.

In view of wider interest, we are also sending this Global Economics Update to clients of our UK Economics service.

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