A novel optimal strategy for money

Purpose This article empirically and analytically shows that when the relative banking margin is higher than, equal to, or lower than the square root of two minus one (0.4142…), called the “silver mean” in other sciences, the quotient between income and the reference interest rate is negative, zero or positive, respectively. Design/methodology/approach Worldwide empirical evidence from a large dataset of 216 countries for 1960–2021 confirms this relationship. The methodology employs Ordinary Least Squares (OLS), Instrumental Variables (IV) IV Two-Stage Least Squares (2SLS), Fixed Effects, System Generalized Method of Moments (SYS-GMM), Granger Causality and advanced Difference-in-Differences (DiD) techniques. Findings To maintain equilibrium, a reduction in the reference rate (denominator) decreases the absolute value of income (numerator), leading to a −/+ shift in income. The economic interpretation is that a relative margin of financial services exceeding or falling short of the silver mean indicates an excess of supply or demand in the economy, respectively. Empirically, when supply exceeds demand, a decline in the pure interest rate leads to statistically significant average increase of approximately $1,000 in income, compared to a $470 decrease in the same the same year when demand exceeds supply. Overall, lowering interest rates is predominantly beneficial rather than harmful. Originality/value To our knowledge, this paper provides the first empirical evidence establishing this relationship and proposes a novel policy strategy based on these findings.