foreign central banks

16 06, 2025

Karen Petrou: Why Republicans Want the Fed’s Money

2025-06-16T09:23:03-04:00June 16th, 2025|The Vault|

In the iconic movie “Goldfinger,” a murderous thug with a deadly bowler hat chases James Bond around Fort Knox as our hero stops a maniacal plutocrat from making the nation’s gold stock go radioactive.  Compared to current gold conspiracies, that almost makes sense.  Both President Trump and Elon Musk, among others, have doubted the security of the nation’s gold supply on nothing more than the fact that they haven’t actually seen it.  To the rescue last week rode several super-conservative Members of Congress, who have introduced a bill to force an “independent” audit – read not the GAO or even Treasury – of all the gold held by or entrusted to the U.S.  Gold conspiracies have come and gone since at least 1974, but the heights reached now speak to profound, widespread distrust of the government even by those who run it.  This paranoia isn’t limited to inert stockpiles.  It pervades two of the nation’s three branches of government and even occasionally touches the third.  Thus, just because something doesn’t seem to make sense doesn’t mean it won’t happen.

I bring this up because several responses to my memo a couple of weeks back said Congress would never cotton to a sharp reduction in the payment of interest on reserve balances (IORB) or to balances held in the U.S. by foreign central banks.  “Fringe thinking,” or so I was told by friends at the Fed, thinking they believed they could easily dismiss without a second thought by reminding critics …

2 06, 2025

Karen Petrou: A New Trade War: Interest on Reserves

2025-06-02T09:16:29-04:00June 2nd, 2025|The Vault|

Clients will recall that, during his first term, Donald Trump nominated Judy Shelton, a frequent monetary-policy commentator, to the Federal Reserve Board.  However, her nomination sparked outrage among Congressional Democrats and many pundits that doomed confirmation.  Ms. Shelton nonetheless remains a trusted adviser to many with the President’s ear, making renomination and, this time, confirmation a strong possibility should Ms. Shelton still want a seat on the Board of Governors.  We thus took notice when she last week posted an attack on the payment of interest by the Fed on balances held by foreign branches and agencies.  She drew in part on another post adding foreign central banks to the complaint.  This might seem a remote or even improbable concern, but so does much else in CEA head Stephen Miran’s proposal positing a “user tax” that’s now in the House reconciliation bill attacking foreign investors.  Ms. Shelton’s complaint should thus be taken very seriously, especially given all the other demands to curtail interest on reserve balances (IORB).

Ms. Shelton finds that foreign branches and agencies get 42 percent of interest payments from the Fed, or about $78 billion based on total interest payments to banks of $186 billion in 2024.  Rates now on IORB stand at about 4.4 percent – one of the very best deals on offer for super-safe, overnight funds.  Another post calculates interest payments to foreign central banks at around $16.5 billion a year.  In short, it’s a lot of money which the posts rightly say …

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