Why does the Fed pay interest to banks?

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Why does the Fed pay interest to banks?It is interest on money held in reserve.It is interest on credit available to the Fed.It is interest on loans taken by the Fed.It is interest on government investments.​


The Fed pays interest to banks because it is the interest on money held in reserve.

What are reserves?

Reserves is the total amount of a bank’s deposit that is not given out as loans and kept with the Fed. The amount of reserves is dependent on the reserve requirement.

The purpose of reserves is for to have money for meet unforeseen situation. it is also a means to control money supply.

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