3 While Norges Bank seeks to maintain the sum of the reserves in the banking system around NOK 35 billion, the sum of banks’ quotas is NOK 45 billion, so that banks as a whole can always deposit the reserves outstanding in the banking system at the key policy rate. Should the volume of reserves exceed the sum of banks’ quotas, some banks would have to hold reserves at the reserve rate. That would push down the overnight interbank rate towards the reserve rate. But for that to occur, Norges Bank would have to stop withdrawing surplus liquidity through market operations. There are no plans to make such a change to our liquidity policy. The reserve rate in Norway is now at a negative 0.25 percent. But this will not lead to negative money market rates. With normal liquidity management, which ensures that there are no excess reserves in the system, the key policy rate – not the reserve rate – determines  1  Similar quota systems are in use in Denmark, Switzerland and New Zealand. For a more general discussion of liquidity management systems, see Syrstad, O. (2011): “Systemer for likviditetsstyring: Oppbygging og egenskaper” [Liquidity management systems: design and features], Norges Bank Staff Memo 5/2011 (Norwegian only). Banks’ feedback on the current liquidity management system, introduced in October 2011, is discussed in Norges Bank Papers 4/2014: “Banks’ assessment of Norges Bank’s liquidity management system”.
BIS central bankers’ speeches  7  Some notable points include:   Over the period 2010 to 2050, the average scale of capital inflows, relative to market capitalisation, for the G20 emerging markets is around 8% per year. That is greater than the peak inflow experienced in the recent past, including in 2010, during which time asset prices rose significantly and protective policy measures were put in place.   Given the likely variation in these inflows year by year, the picture is even more striking. Potential “peak” inflows are into double digits for the majority of G20 emerging markets. As context, peak portfolio equity inflows to East Asian countries in the three years preceding their 1990s crisis averaged 4% of market capitalisation.   For some individual emerging market countries, these capital inflow patterns are dramatic. For example, over the period 2010–2050, average inflows to India and Indonesia exceed 10% of their equity market capitalisation. Taken together, these projections do not suggest a dissipation of the BFSP problem. More likely, they suggest it could intensify, perhaps significantly, in the period ahead. If capital markets operated efficiently, these portfolio flows need not cause waves in emerging credit and asset markets. In practice, frictions in the functioning of these markets mean that asset market spillovers seem very likely to persist. In other words, the splashes from the big fish risk causing waves every bit as great, and potentially greater, than those seen recently.