An examination of three policy problems associated with daylight credit and an evaluation of three reform proposals to alleviate the payment system risk associated with Federal Reserve Banks’ extension of daylight credit to financial institutions.
The primary job of the modern central bank is to manufacture money. In January 1999, the new European Central Bank (ECB) began manufacturing a new money-the euro-by taking over the operations of 11 European nations’ monetary systems.
The federal funds rate was unusually volatile for several months starting in late December 1990. Day-to-day changes over this period were far greater than in previous years, although the difference seems to have disappeared recently (figure 1A).