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Vol. 80, No. 4
Posted 1998-07-01

How Closely Do Banks Manage Vault Cash?

by Donald S. Allen

This article examines daily vault cash balances in the Eighth Federal Reserve District to see if banks have been optimizing their vault cash levels. Recent reductions in reserve requirements have not been accompanied by significant reductions in vault cash. This situation suggests that banks may be managing vault cash reserves primarily as precautionary balances to satisfy daily fluctuations in deposits and withdrawals, rather than part of total reserve management. In 1997, some larger banks instituted formal management of vault currency. If practice spreads, it will have implications for monetary policy and cash operations.

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