DSST Money & Banking Part 1

Use additional means other than open market

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use additional means other than open market operations, such as changes in reserve requirements or capital  controls, to achieve monetary outcomes. 
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Economist  Robert Mundell  has stated that when using open market operations it is only possible to pursue a single target  at any given time. One cannot use open market operations to target interest rates while being on a gold standard.  Likewise if you are targeting interest rates then the exchange rates will fluctuate. How open market operations are conducted in the USA In the U.S., the  Federal Reserve  (Fed) most commonly uses overnight  repurchase  agreements (repos) to temporarily  create money, or reverse repos to temporarily destroy money, which offset temporary changes in the level of bank  reserves. [2]  The Fed also makes outright purchases and sales of securities through the System Open Market Account  (SOMA) with its manager over the Trading Desk at the New York Reserve Bank. The trade of securities in the SOMA  changes the balance of bank reserves, which also affects short term interest rates. The SOMA manager is responsible for  trades that result in a short term interest rate near the target rate set by the  Federal Open Market Committee  (FOMC), or  create money by the outright purchase of securities. [3]  Very rarely will it permanently destroy money by the outright sale of  securities. [ citation needed ]  These trades are made with a group of about 22 banks or bond dealers who are called  primary   dealers . Money is created or destroyed by changing the reserve account at a bank. The Fed has conducted open market  operations in this manner since the 1920s, through the Open Market Desk at the  Federal Reserve Bank of New York under the direction of the  Federal Open Market Committee . Current goals and procedures of open market operations In the United States, as of 2006 the Fed sets an interest rate target for the  Fed funds  (overnight bank reserves) market.  When the actual Fed funds rate is higher than the target, the desk will usually increase the money supply via a  repo   (effectively lending). When the actual Fed funds rate is less than the target, the desk will usually decrease the money  supply via a reverse repo (effectively borrowing). The  European Central Bank  has similar mechanisms for their operations; however, it uses a four-tiered approach with  different goals: beside its main goal of steering and smoothing  Eurozone  interest rates while managing the  liquidity   situation in the market the ECB also has the aim of signaling the stance of monetary policy with its operations. The regular 
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