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In: Accounting

How do the advances in the information technology affect this benefit and cost of contemporaneous reserve...

How do the advances in the information technology affect this benefit and cost of contemporaneous reserve accounting?

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Expert Solution

At present, the world is witnessing a rapid evolution process in the need for information facilities in terms of quantity, quality and access to information, in order to make the best decision based on the different changes and dynamics of the enterprises environment. This demonstrates clearly the growing importance of information systems and their ability to satisfy the needs of enterprises information. This emphasizes the importance to develop these systems and to increase their effectiveness and efficiency. One of the key elements of the success of these systems is that they have become dependent on sophisticated technology that have greatly facilitated access to information and clearly reduced access costs.

The telecommunications sector has undergone a decisive transformation in a short period thanks to the technological developments that underpin it. It has become the infrastructure of what is known today as the knowledge economy which depends on the information and its delivery methods in the shortest time and at the lowest costs possible. Due to the tremendous development witnessed by this sector and to the extent it has contributed in all sectors, especially in light of the use of satellite, mobile phone and the Internet, this has put the companies in front of a new challenge which is the acquisition of information and communication technology.

No one can doubt that information technology is a fundamental and innovative revolution that has touched human life considerably in the last century. Indeed, far from being an effervescent phenomenon, or a passing trend, information and communication technology has just been exploited in all aspects of life. No domain has remained immune to this policy, which facilitates tasks for both the company and the staff.

Contemporaneous accounting
The cure for this problem, say the monetar- ists, is a return to contemporaneous' reserve accounting (eRR). And, after studying the issue, the Board of Governors announced recently that it has decided in principle to do just that. The new system-which will not . comeintouseuntiImid-1983attheearliest- will not be quite like the pre-1968 regime. The principal differences are that the ac-
cou nti ng period wi II be extended from one to two weeks, the contemporaneous require- ment will apply only to transactions ac- counts, and the system will not be a perfectly contemporaneous one. There will be a two- day lag with reserves over two-week periods ending on Wednesdays being based on de- posit totals for two-week periods ending
on Mondays.
Under eRR required reserves in a given state- ment period will no longer be predetermined. If banks take actions which alter total depos- its, this will change required reserves con- temporaneously. Hence the Fed wi II not be obligated to supply a quantity of reserves equal to a predetermined required amount. Instead it will be able to offset changes in borrowing at the discount window by equal changes in non-borrowed reserves to keep total reserves unchanged. Thus, with contem- poraneous accounting, the Fed will in prin- ciple be able to control total reserves, rather than only the non-borrowed/borrowed reserves split. At present, however, although the System has decided to move to contem- poraneous accounting, it has not yet decided whether to adopt total reserves as its short-run operating target rather than the non-borrow- ed reserves target currently in use.


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