(1) Bank Reserves — A Definition

Image credit

Working toward a better understanding of bank reserves, here is a general definition:

As eloquently stated by Clews, Salmon and Weeken (2010), ‘reserves are overnight balances that banks hold in an account at the central bank. As such, they are a claim on the central bank. Together with banknotes, reserves are the most liquid, risk-free asset in the economy. And they are the ultimate asset for settling payments; banking transactions between customers of different banks are either directly or indirectly settled through transfers between reserves accounts at the central bank’. As discussed above reserves can be thought of a[s] current account balances held by commercial banks at the central bank in the same way that individuals hold such accounts at commercial banks.

The source.