In normal times, there are valid reasons for paying interest on excess reserves.

But the new Fed policy of paying interest on excess reserves meant that this increased availability of excess reserves did not lead after 2008 to much faster deposit growth and a much larger stock of money.

The interest rate on these totally safe and liquid deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits to absorb the increased reserves, as they would have done before 2008.

It should stop paying interest on excess reserves until the US economy returns to a more normal footing.

Since reserves in excess of the required amount did not earn any interest from the Fed before 2008, commercial banks had an incentive to lend to households and businesses until the resulting growth of deposits used up all of those excess reserves.

The link between Fed bond purchases and the subsequent growth of the money stock changed after 2008, because the Fed began to pay interest on excess reserves.

As a result, the volume of excess reserves held at the Fed increased dramatically from less than 2 billion in 2008 to 1.8 trillion now.

And, if the exit occurs via a rise in the interest rate on excess reserves (to sterilize the effect of a base money overhang on credit growth), the ensuing losses for central banks balance sheets could be significant.

China s Excess Capacity Nightmare

The Fed could, in principle, limit inflationary lending by raising the interest rate on excess reserves or by using open market operations to increase the short term federal funds interest rate.

Reserves

That means that banks circulated only 2 of QE2 s contribution, leaving the rest idle. Similarly, since QE3 was launched last September, total bank reserves have grown by 244.1 billion, and excess reserves by 239.4 billion meaning that 99 of the funds remain idle.

(l) Other reserves

(j) Operating reserves

Currently, however, it is downright counter productive. Bank loans have started to increase, but small borrowers, new borrowers, and start up companies are regularly refused.

Covering this drop in reserves more than half of gas reserves and a fifth of oil reserves have been consumed with imports implies an annual cost of more than 300 billion.

Africa s natural gas reserves amount to about 8 of global reserves.

Table 6 Comparison of reserves and staff liabilities

Other reserves comprise the following

(g) Transfers to reserves

There are still a few million surplus workers in Central Asia.

The activities on all reserves are shown as follows

Finally, Spaniards could borrow excess German savings and increase consumption and investment.

NATO has been involved in the destruction of a number of surplus stockpiles.

Africa is estimated to hold more than 10 of global oil reserves and one third of reserves of cobalt and base metals.

As a result, China now faces the problem of short term excess capacity.

Investors might choose other places for their excess cash, like banks.

a Including earmarked reserves, the total reserves are 70 million for 2002, 93 million for 2003 and 68 million for 2004.

This is slowing the absorption into the economy of the excess resources in the construction industry.

(vi) Proceeds from the sale of surplus property are credited to the miscellaneous income of the respective funds.

Meanwhile, the fraction of international reserves held in euros grew from 18 to 24 , and the dollar s share dropped from 71 to 66 .

a Including earmarked reserves, the total reserves are 70 million for 2002, 93 million for 2003 and 68 million for 2004.

But the more immediate problem remains deflation, given high unemployment and excess capacity.

It has 10 of global oil reserves.

Total reserves of titanium are estimated to exceed 600 million tonnes.

The idea was to permit countries whose official dollar holdings were larger than they were comfortable with to convert dollars into SDRs.

In 2008, the last year for which figures are available, Japan held 23.4 of the world s reserves and China held 44.8 .

First, unlike in some other countries, Chinese commercial banks are paid reasonable interest rates on required reserves, except for the extra reserves that they hold.

The obvious candidate for this reserve fund was US Treasury bills.

Selling 2 trillion of reserves will take years.

At the time of the announcement, the country had 5.65 billion in cash reserves.

As a result, all of this excess liquidity is flowing to the financial sector rather than the real economy.

China now stands ready to absorb some of that surplus saving to promote a shift toward internal demand.

The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad.

Run down the financial reserves and wealth that were accumulated when the economy was doing better.