ABSTRACTThis article offers an attempt at defining and computing the coherence of, and substitution among, the standard instruments of monetary policy, viz. open market policy, rate of interest, and reserve coefficient.A number of separation theorems are proved and a unit‐elasticity rule derived for the tradeoff between the reserve coefficient and the premium on risky assets.Finally, for any given interest rate we select an optimal portfolio by the maximal‐caution criterion, which minimizes the probability of fail