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Discuss the process of money creation by commercial banks


Discuss the process of money creation by commercial banks



This is a process in which banks multiply money in the economy using the deposits of their consumers. When an individual deposits cash in a bank, the deposited cash becomes a liability to the bank and an asset to the depositor. The bank converts the liability into an asset through reserves and loans given out to borrowers. The process of money creation is referred to as credit creation. The process continues indefinitely subject to the following limitations: the cash ratio, lack of demand for loans and cash drain

Dana05 answered the question on August 14, 2019 at 07:15

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