An interesting problem brought up by Alt-M

George Selgin says:

Given present, high excess reserve holdings, and their uneven distribution among banks (many more at large and foreign banks), raising required reserves would be a very messy alternative--and one that would dramatically undermine the international competitiveness of U.S. banks, while doing nothing to reduce the Fed's giant footprint!

Now, my emphasis is on foreign banks, it is a kind of Swiss problem, large foreign institutions like the liquidity of the US dollar, and they keep their lisuidity in dollar digits at the Fed demand deposit account/.

Let us assume that Congress can dictate to the Fed, make a rational response as if you used a ratipnal ru;le.  What should the Fed do?

Go solicit foreign loans to balance the foreign deposits so your set of borrowers and savers are about the same.

Second, adopt sandbox rules.

Here is where I get it right and the monotonarians screw it.  The Fed needs to offer large foreign depositers the opportunity to be large foreign borrowers because the Fed can appropriately share currency risk and keep the pricing function working.  That requires competitive currencies so that domestic needs are fulfilled if the Fed has to chase foreign business.

The Fed is a pricing engine, it has to work, it will make itself work with abrupt, sudden requantization, if it has to,. But the Fed must ultimately find the balance between savings and deposits. When the two classes are a complete subdivision, then the monetary zone is defined.  Not the other way around, and governments cannot intervene in pricing, they can only make it abrupt and painful.

Use the basket brigade model on this

There is a collection of baskets, big and small.  When ever the bis empty into the smalls, both parties swipe their cash card.  When, out of typical, the large suddenly empty into the smalls, en mass, then the Fed sees a few large deposits and many small loans, the distributions are out of precision, the queues will back up if this continues. The Fed compresses distributions to precision, and generates the appropriate asynchronous interest exchanges.

Now, let us stick Congress into the mix,. Congress intervenes, tallies up the card swipe for the large baskets, then tells the banks to put it on Congressional tab.  Pricing will not work, not unless you have access to my locked up, Russianmathematician, wait....no, he is still there, in a refrigerated room with stacks of pencil and paper scribbling furiously.