The original act had stated that Fed Banks were "to furnish an elastic currency," which meant that they would rediscount
commercial paper of member banks that wanted to convert deposits into currency--"form elasticity"--so as to prevent undue change in the total quantity of money.
The ratios of securities to assets, loans to assets, and rediscounts
to assets all match White (1984).
A main contributing factor has been the profusion of instruments of monetary policy employed by the central bank: intervention in the money market (through the auction of certificates of deposits), intervention in the foreign exchange market (through direct sales and purchases of foreign exchange), and several other secondary instruments such as rediscounts
, reserve requirements on the sizable foreign currency deposits and the interest paid on those reserve requirements.
In June 1919, by contrast, discount loans totaled $1818 million; of these, 87 percent represented rediscounts
of, or advances against, U.
As a result, "[a]fter 1937 the Federal Reserve practically ceased to buy or rediscount
such paper" until after World War II.
Instead of concentrating on the money stock, the price level, and other indicators featured in the quantity theory, the Fed focused on such measures as the level of market interest rates, the volume of member bank borrowing, and the type and amount of commercial paper eligible for rediscount
at the central bank.
discount and rediscount
instruments increase creditor and debtor
Likewise, in 2003 the Central Bank had issued advances, rediscounts
and other financial facilities for RD$3.
The policy instruments Peru has employed include intervention in the money market (through auction of certificates of deposit), intervention in the foreign exchange market (direct transactions of foreign exchange), and several other secondary instruments such as rediscounts
, reserve requirements on the sizable foreign currency deposits, and the interest paid on those reserves (see Mishkin and Savastano 2000).
82) suggests how the bad-times corollary might be stated: If the central bank rediscounts
real bills only, even when the volume of real bills is dramatically diminished by continuing recessionary conditions and even when demands for liquidity are high, then the accompanying deflationary pressures are of no concern to the central bank.
We also encoded data on bills payable and rediscounts
with Federal Reserve Banks and the Reconstruction Finance Corporation, the distribution of cash and amounts due from other banks, a detailed breakdown of demand and time deposits, and the liabilities to each bank of its officers and directors.
Just as a low level of reserves signaled trouble, so too did a heavy reliance on borrowed funds such as rediscounts
of loans with other banks or with the Federal Reserve.