THE ORIGIN OF FINANCE TOOL FUNCTIONS: COMPULSORY RESERVES

The article deals with investigation of an unusual phenomenon, i. e. the origin of compulsory reserve functions as a multifunctional finance tool. Compulsory reserves (compulsory reserve requirements – norms of compulsory reserves) as a finance tool in disclosing its functional idea reveal their character not only in the traditional function, as a tool that regulates liquidity of the banking system but also as a tool possessing specific multifunctional nature, which allows the central banks by ensuring stability of banking organizations (key components of the banking system) functioning to guarantee stability of the banking system as a whole. The article shows this specific multifunctional character through mechanisms of averaging. Proceeding from the analysis of averaging mechanism functioning, a conclusion can be made about extending the functional set of compulsory reserves as an effective finance tool. It was pointed out that each of the mentioned functions can be presented by more local functions making up system integrity. Local functions are identified with due regard to diverse interests of the parties participating in the process of compulsory reserving. It was shown that the buffer function of the interest rate is displayed into local functions: the function of regulating rate volatility on money market and the function of regulating the value of loan funds. The author thinks that function localization possesses not only scientific value (in view of disclosing the mechanism of more effective use of this finance tool) but also a certain applied value, as it allows us to reveal real economic interests of each party and therefore, to use more efficiently the found advantages of this finance tool.

local function, averaging mechanism, multifunctional character of the finance tool, reserve norm, compulsory reserve requirements, functions of compulsory reserves, the function of the interest rate buffer, the function of regulating rate volatility on money market, the function of regulating capital flows, the function of regulating the value of loan funds, the function of regulating banks’ current liquidity, effect of absolute liquidity, effect of ‘liquid trap’

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