Discount rate,

Reserve Requirements
and Money Supply
 Content
Definition of the money supply
Monetary policy instruments
Discount rate
Reserve Requirements
Open market operations
Bank of England Monetary Policy
What is the money
supply?

The money supply is the total amount

of money—cash, coins, and balances
in bank accounts—in circulation
Monetary policy instruments

Reserve requirements

Open market operations

Discount rate
 - is the rate of interest which a central
Discount Rate bank charges on its loans and advances
to a commercial bank.

decrease of the increase of the

discount rate discount rate

increase the amount of decrease the amount of

money in circulation money in circulation
Reserve Requirements
• Bank reserve requirements are set as a supervisory
regulation
• Minimum cash reserves are generally set as a fixed
percentage of a bank’s deposits
• Financial institutions can borrow from other financial
institutions with excess reserves at the overnight rate
 Open market operations

Sell Government Securities Buy Government Securities

Decreases Money Supply Increases Money Supply

The Monetary Policy Committee’ targets

Source: Monetary policy / Bank of England https://www.bankofengland.co.uk/monetary-policy

Bank of England purchases of bonds

Source: Monetary policy / Bank of England https://www.bankofengland.co.uk/monetary-policy

Contact details
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