That would be a remarkable coincidence, wouldn’t it?

The message is very clear: the Bank of England clearly thinks that the central bank reserve accounts that are created as a consequence of quantitative easing, and which are held by the clearing banks with the Bank of England, are critical to the financial stability of the UK economy.

As to the question that Bailey poses as to how many hundreds of billions of liquidity are required, I suggest that there is an answer. That answer is not less than £895 billion, which just happens to be the current target sum for quantitative easing, and may be considerably more when the need for green quantitative easing is taken into account.

That the world has changed is true. Bank liquidity used to be – largely – dealt with via interbank lending. That market is pretty dead now, being replaced, pretty much, with reserves at the central bank.

OK, cool. So, how much more of those reserves do we need to ensure the liquidity under the new system. Be a hell of a coincidence if it were just exactly the amount that government has borrowed and pissed away, wouldn’t it?

It would also be true that if we wanted to tighten monetary conditions – something we would if inflation returned – then we’d want to reduce the amount of those central bank reserves, which means reducing or reversing QE…..

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