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You're referring to a simplified description of the effect of a 10% reserve requirement on the money supply. If you deposit $10 into a transaction account, the
by dreish 17y ago
You're referring to a simplified description of the effect of a 10% reserve requirement on the money supply. If you deposit $10 into a transaction account, the bank may lend $9 of that (not $90), and only if you assume each dollar lent is deposited into a transaction account with the same 10% reserve requirement do you get the net effect on the entire money supply (mostly through other banks) of +$100.
In practice this does not happen. And in any case, no one lends money they don't have, as you put it, unless you have strange ideas about what constitutes money.
- va_coder 17y agoYes, that is correct, individual banks do not loan out money they do not have, but the collective system does. And I gathered that he wants to be separate from that system and therefore not take part in fractional reserve banking. If he were to explain in detail how he would have 2-3x more reserves than the banks and not take part in the fractional reserve banking system, he would clear up some of the confusion.