Macroeconomics, 2nd Edition by Pearson

380

MACROECONOMICS

companies and pension funds are often required to hold larger proportions

of assets, in the form of government securities, than they would choose vol-

untarily. The largest captive buyers of government securities, however, in

developing countries are commercial banks. By setting high-liquid asset ratios

(known as the statutory liquidity ratio, SLR) and ensuring that government

securities are the only eligible asset that satisfies this requirement, govern-

ments can borrow substantial amounts at below market rates of interest.

A second way the government finances its deficits is by setting high-reserve

requirements. ...