How Abundant Are Reserves? Evidence from the Wholesale Payment System

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Staff Reports

How Abundant Are Reserves? Evidence from the Wholesale Payment System

Number 1040
November 2022

JEL classification: E42, E44, E52, E58, G21

Authors: Gara Afonso, Darrell Duffie, Lorenzo Rigon, and Hyun Song Shin

Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments. By providing a window on liquidity constraints revealed by payment behavior, our results shed light on thresholds for the adequacy of reserve balances. Our findings are timely, given the ongoing shrinking of central bank balance sheets around the world in response to inflation.

Available only in PDF

Author Disclosure Statement(s)

Gara Afonso
The author, Gara Afonso, declares that she has no relevant or material financial interests that relate to the research described in this paper.

Darrell Duffie
The author, Darrell Duffie, declares that he has no relevant or material financial interests that relate to the research described in this paper.

Lorenzo Rigon
The author, Lorenzo Rigon, declares that he has no relevant or material financial interests that relate to the research described in this paper.

Hyun Song Shin
The author, Hyun Song Shin, declares that he has no relevant or material financial interests that relate to the research described in this paper.

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