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QuestionWhat is the relationship between current account balances at the Bank and the reserve requirement system?

Answer

If financial institutions which are subject to the reserve requirement system hold current accounts at the Bank in order to conduct transactions with the Bank through current accounts they hold at the Bank, they do not need to open a separate deposit account for holding reserves. This is because the total amount outstanding of their current account deposits at the Bank is counted as reserves in satisfying reserve requirements. If financial institutions do not hold current accounts at the Bank, they need to open a special reserve account and deposit funds therein.

Some of the financial institutions that are not subject to the reserve requirement system, including financial instruments firms and tanshi companies (money market brokers), hold current account deposits at the Bank to be used mainly for funds settlements.

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