Third, the interest-on-reserves regime might very well be self-financing; it even has the potential to generate significant additional revenue for the government. At worst, switching to the interest-on-reserves regime would involve a relatively small adverse effect on government finances. Paying a market rate of interest on reserves could create cash flow problems for a central bank; but these problems would be manageable. Finally, the interest-on-reserves regime would eliminate entirely distortions in financial markets due to the tax on reserves. Banks would save resources that had been devoted to economizing on reserves. An abundance of costless, safe reserves would substitute somewhat for.
