The SRD Requirement and Monetary Policy

Abstract

This paper considers the role of the SRD requirement as an instrument of monetary policy. It argues that the mere presence of the SRD requirement and neither the value of the SRD ratio nor its variability over time defines the significance of the SRD for monetary policy. A decision to abolish the SRD requirement may destabilize the demand for cash and complicate the task of the monetary authorities. Payment of interest on SRD accounts would serve to alleviate the distorting effect of the SRD requirement on the pattern of financial intermediation. Copyright © 1988, Wiley Blackwell. All rights reserved