4. Since the 2000s, more central banks have begun to pay interest to commercial banks on their reserve balances held in accounts at the central bank, and 'quantitative easing' (QE) policies have vastly increased the supply of reserves. Now with rising interest rates, the practice of paying interest on reserves has become more controversial. Use the model of the interbank market with demand and supply curves for reserves to analyse the implications for money-market interest rates of abolishing payment of interest on reserves, assuming QE is not reversed.
