Since joining the IMF, Romania has been part of the Dutch Constituency. In 2012, Belgium and Luxembourg joined, establishing the Dutch-Belgian Constituency, one of the largest and most diverse constituencies at the IMF. I have to mention that the National Bank of Romania has extensively benefited during the whole transition process from technical assistance from members of this Constituency in two essential banking areas, such as bank supervision form the Nederlandsche Bank (DNB) and market operations from the National Bank of Belgium. Actually, the first Law on the Statute of the National Bank of Romania was drafted following the model of the National Bank of Belgium, while the Dutch influence goes even further back in time. If history simply wanted to repeat itself: one knows that the name of our national currency draws its name from the löwenthaler (leul taler), a silver Dutch coin that circulated approximately four hundred years ago. Allow me to introduce, even though many of you already know him, Paul Hilbers, the IMF Executive Director of the Dutch – Belgian Constituency, a very dear and old friend of Romania. I would like to thank him for his current work representing our country within the IMF Executive Board, and for all his support throughout his career.
The main way we achieve these goals is by controlling the federal funds rate, the rate at which banks lend each other money overnight in the form of unsecured loans. This rate in turn affects overall financial conditions and thereby the wider economy. At each of its meetings, the Federal Open Market Committee (FOMC) decides on the target range for the federal funds rate, which currently stands at 1-3/4 to 2 percent.2 But how does this work—that is, what keeps the federal funds rate within the target range? The Fed has an operational framework in place designed to keep interest rates where the FOMC wants them. We call this an “ample reserves” regime. Back in January of this year, the FOMC communicated its intention to continue to implement policy according to this regime.3 The key benefit of this approach is that it’s a simple, effective way of controlling the federal funds rate and thereby influencing other short-term interest rates. The ample reserves framework has three elements designed to maintain the federal funds rate within the target range. The first, not surprisingly, is supplying an amount of reserves that banks hold at the Federal Reserve that is “ample.” By that, we mean that the supply of reserves is adequate to efficiently and effectively implement monetary policy. Here, “efficient” means that the level of reserves is not excessive, relative to what’s needed to be effective.