How commercial banks create credit or money

11:42 AM
How commercial banks create credit or money

through the creation of funds, which means the operation of commercial banks, and made it possible for more deposits will be through loans and the process of creating credit is also called for the creation of cash or money creation. By granting loans to their customers, and commercial banks to increase the purchasing power of the borrower, as well as increase the volume of cash in circulation. Commercial banks are used as the basis for the current account credit or money to create. However, it is not possible for a commercial bank and one credit or money to create. For credit or money to be created, and the whole banking system, you will have to be involved.

required

commercial banks by law to maintain a certain percentage of their deposits with them. This percentage kept with them is known as the cash ratio, or the proportion of liquidity or cash reserve. This is done in order to protect customer deposits and prevent the banking crisis. This percentage of the banks' cash ratio will keep fixed by the central bank, and varies from one country to another. If we assume that the central bank determines the 10% cash ratio, and after that means that it must be kept for each deposit bank receives 10% of the deposits in the bank while can give the rest of the 0% of the loan or overdraft by the Bank. This cash rate to keep 10% or reserved at the bank for bank withdrawals to meet with clients. There are other ways in which commercial banks generate credit, for example, the death of a customer, through government policies, through the sale of treasury bills and receipts, as well as through the sale of shares to the customers and the entire public.

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