Gold a Safe Harbor on an Ocean of Excess Reserves

"We had initially asked to pay interest [in 2006] on reserves for technical reasons. But in 2008, we needed the authority to solve an increasingly serious problem: the risk that our emergency lending, which had the side effect of increasing bank reserves, would lead short-term interest rates to fall below our federal funds target and thereby cause us to lose control of monetary policy. When banks have lots of reserves, they have less need to borrow from each other, which pushes down the interest rate on that borrowing — the federal funds rate." Ben Bernanke, The Courage to Act

First published here: Gold a Safe Harbor on an Ocean of Excess Reserves