{"id":198,"date":"2018-12-28T18:27:01","date_gmt":"2018-12-28T18:27:01","guid":{"rendered":"https:\/\/wp.ull.es\/dibaf\/?p=198"},"modified":"2022-02-07T14:53:23","modified_gmt":"2022-02-07T14:53:23","slug":"bank-money-creation-reserve-requirement-and-money-multiplier","status":"publish","type":"post","link":"https:\/\/wp.ull.es\/dibaf\/2018\/12\/28\/bank-money-creation-reserve-requirement-and-money-multiplier\/","title":{"rendered":"Bank Money Creation, Reserve Requirement and Money Multiplier"},"content":{"rendered":"\n<figure class=\"wp-block-gallery aligncenter columns-1 is-cropped wp-block-gallery-1 is-layout-flex wp-block-gallery-is-layout-flex\"><ul class=\"blocks-gallery-grid\"><li class=\"blocks-gallery-item\"><figure><img decoding=\"async\" src=\"https:\/\/wp.ull.es\/dibaf\/wp-content\/uploads\/sites\/46\/2018\/12\/T1-P4.jpg\" alt=\"\" \/><\/figure><\/li><\/ul><\/figure>\n\n\n\n<p>Banks have the obligation to keep in reserve only a part of their customers&#8217; deposits, in a percentage that depends on the requirements of the Central Bank (the reserve requirement, 2% in Spain). When banks lend the part of the deposits that are not in reserves, the money can return to the banking system in the form of a new deposit. That repetition of loans can happen several times. Banks \u00abmultiply\u00bb money by creating bank money.<br> The reserve requirement is a central bank regulation that establishes the minimum amount of reserves that a commercial bank must have.<br> The money multiplier is the process that allows banks to multiply the bank money by starting from an initial amount of money. This is because banks are only obliged to keep in their reserves a minimum level of money (The Cash Reserve Ratio, CRR)<br> With this process of creation of bank money, the money supply of a country is<br> increased. In most modern economies most of the money supply is in the form of bank money and not legal money (notes and coins).<\/p>\n\n\n\n<p><strong>Example:<\/strong> \u2018\u2018The standard story about how banks create money, and how reserves work, is the \u2018Money Multiplier Model\u2019. Money creation starts with the government injecting \u2018fiat money\u2019 into the economy \u2013 say by giving a welfare recipient $100 in cash. That recipient then deposits the cash in a bank, which hangs on to a government-mandated fraction of it (the \u2018Reserve Requirement\u2019) \u2013 say 10 per cent or $10 \u2013 and lends out the rest to a borrower. The borrower then deposits that $90 in another bank, which does the same thing \u2013 hangs onto 10 per cent of the $90 or $9, and lends out another $81 to another borrower.\u2019\u2019<\/p>\n\n\n\n<p><strong>Links:<\/strong><\/p>\n\n\n\n<p><a href=\"http:\/\/ News about the money multiplier\">News about the money multiplier<\/a><\/p>\n\n\n\n<p><strong>Videos:<\/strong><\/p>\n\n\n\n<p><a href=\"https:\/\/m.youtube.com\/watch?feature=youtu.be&amp;v=IWn57LyPiYE\">Cash Reserve Ratio (CRR)<\/a><\/p>\n\n\n\n<p><a href=\"https:\/\/m.youtube.com\/watch?v=93_Va7I7Lgg\">The money multiplier<\/a><\/p>\n\n\n\n<p><a href=\"https:\/\/m.youtube.com\/watch?v=Ov2Sd-QRi_g\">Monetary policy, money creation in a fractional reserve banking system.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Banks have the obligation to keep in reserve only a part of their customers&#8217; deposits, in a percentage that depends on the requirements of the Central Bank (the reserve requirement, 2% in Spain). When banks lend the part of the deposits that are not in reserves, the money can return to the banking system in &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/wp.ull.es\/dibaf\/2018\/12\/28\/bank-money-creation-reserve-requirement-and-money-multiplier\/\" class=\"more-link\">Continuar leyendo<span class=\"screen-reader-text\"> \u00abBank Money Creation, Reserve Requirement and Money Multiplier\u00bb<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[5],"tags":[18,17],"class_list":["post-198","post","type-post","status-publish","format-standard","hentry","category-banking","tag-mural","tag-visualconcept"],"_links":{"self":[{"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/posts\/198","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/comments?post=198"}],"version-history":[{"count":2,"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/posts\/198\/revisions"}],"predecessor-version":[{"id":1559,"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/posts\/198\/revisions\/1559"}],"wp:attachment":[{"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/media?parent=198"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/categories?post=198"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/wp.ull.es\/dibaf\/wp-json\/wp\/v2\/tags?post=198"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}