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  • Other Added - How Commercial Banks Create Credit or Money

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    commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be
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    By creating credits we mean the process whereby commercial banks, make it possible for more deposits to be made through loan and this process of creating credits is also called creation of money or money creation. By granting loans to their customers, commercial banks increase the purchasing power of the borrower and also increase the volume of money in circulation. Commercial banks use current account as basis of creating credit or money. However, it is not possible for one commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be
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    loan and this process of creating credits is also called creation of money or money creation. By granting loans to their customers, commercial banks increase the purchasing power of the borrower and also increase the volume of money in circulation. Commercial banks use current account as basis of creating credit or money. However, it is not possible for one commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be
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    customers, commercial banks increase the purchasing power of the borrower and also increase the volume of money in circulation. Commercial banks use current account as basis of creating credit or money. However, it is not possible for one commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be
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    ulation. Commercial banks use current account as basis of creating credit or money. However, it is not possible for one commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be
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    commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be involved.

    Commercial banks are required by law to keep certain percentage of their deposits with them. This percentage kept with them is known as Cash ratio or Liquidity ratio or Cash reserve. This is done in order to protect customer's deposits and prevent bank crisis. This percentage of cash ratio banks will keep is fixed by the central bank, and varies from one country to another. Assuming the central bank fixes 10% as the cash ratio, it then means that for every dep

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