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Reference
The monetary machine, term by term.
Every definition here describes a mechanism as balance sheet movements, names the misconception it usually carries, and links the primary source. Precision is the product.
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Tier 1 · The Central Bank
11 terms- Bank reservesDeposits that commercial banks hold at the central bank — the settlement asset banks use to pay each other, and a liability of the central bank rather than an asset it owns.Read the mechanism
- Central bank liquidity swap lineAn arrangement under which the Federal Reserve lends dollars to another central bank against its currency, so that bank can relieve dollar funding stress among its own banks.Read the mechanism
- Deposit Facility RateDFRThe rate the ECB pays euro-area banks on overnight deposits at the Eurosystem — since 2022 the rate through which the ECB steers short-term euro rates.Read the mechanism
- Discount windowThe Federal Reserve's standing facility for lending directly to banks against collateral — the backstop that is supposed to cap how high short-term rates can go.Read the mechanism
- Interest on Reserve BalancesIORBThe rate the Federal Reserve pays banks on the reserves they hold with it — the administered rate that anchors the floor of the US policy corridor for banks.Read the mechanism
- Main Refinancing OperationsMROThe ECB's regular weekly collateralised lending to euro-area banks, and the rate charged on it — historically the Eurosystem's principal source of liquidity.Read the mechanism
- Monetary baseM0The total of banknotes in circulation and commercial bank reserves — every form of money that is a direct liability of the central bank.Read the mechanism
- Overnight Reverse Repurchase Agreement FacilityON RRPA Federal Reserve facility where eligible non-banks lend cash to the Fed overnight against Treasury collateral, putting a hard floor under short-term interest rates.Read the mechanism
- Quantitative easingQELarge-scale central bank purchases of bonds, paid for with newly created reserves, used to ease financial conditions once the policy rate is already near its floor.Read the mechanism
- Quantitative tighteningQTThe reverse of QE — shrinking the central bank's balance sheet, usually by letting bonds mature without reinvesting, which destroys reserves.Read the mechanism
- Treasury General AccountTGAThe US Treasury's operating account at the Federal Reserve — the government's chequing account, and a central bank liability that competes directly with bank reserves.Read the mechanism
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Tier 2 · The Commercial Layer
2 terms- Broad moneyM2Money the public can actually spend — currency plus bank deposits and close substitutes — most of which is created by commercial banks when they lend.Read the mechanism
- Money multiplierThe textbook ratio m = 1/R describing the maximum deposit money a banking system could support on a given reserve base — a ceiling, not a description of how banks actually operate.Read the mechanism
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Tier 3 · Shadow Banking & Money Markets
5 terms- Euro Short-Term Rate€STRThe ECB's benchmark for unsecured overnight borrowing costs of euro-area banks, computed from reported money market transactions and the replacement for EONIA.Read the mechanism
- EurodollarA US dollar deposit held at a bank outside United States jurisdiction — dollars created offshore, beyond the Federal Reserve's direct reach.Read the mechanism
- Primary dealerA trading counterparty of the New York Fed, obliged to bid at every Treasury auction and to make markets in government securities — the channel through which open market operations reach the financial system.Read the mechanism
- Repurchase agreementRepoThe sale of a security combined with an agreement to buy it back at a set price and date — legally a sale, economically a loan secured by collateral.Read the mechanism
- Secured Overnight Financing RateSOFRA broad measure of the cost of borrowing cash overnight secured by US Treasury collateral, published each morning by the New York Fed and the main US replacement for LIBOR.Read the mechanism
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