It has long been against the rules for banks to engage in arbitrage by borrowing at the discount rate and lending in the Fed Funds market at a higher rate.

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However, he also tolerated a legal parallel market that kept the country supplied with hard currency at a higher rate (providing countless opportunities for arbitrage).

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Under more normal financial conditions, the willingness of banks to engage in the simple arbitrage noted above will tend to limit the gap between the federal-funds rate and the rate the Fed pays on reserves.

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