The Reserve Requirement Is Just “a Service Charge for Legalized Counterfeiting”

Nice line from The New Arthurian. (Update: He reminds me that I should have included his comment, which I agree with: “Not that there’s anything wrong with that.”)

If the reserve requirement is 10%, it shaves about ten percent off the interest banks receive on their money-printing loans. If their loan rates are running at 5%, it costs them 0.5% a year. Not a bad price/privilege ratio.

See also the peanut-butter metaphor he links to as an explanation of interest on reserves.