What is Reserve Requirement?

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Accepted Answer

Reserve Requirement is the minimum fraction of a commercial bank's customer deposits that the bank must hold in reserve, either in its vault cash or on deposit with the central bank, and it serves as a primary tool of monetary policy to influence the money supply and credit creation in the economy.

Reserve Requirement

What is Reserve Requirement?

What is the primary mechanism through which the Reserve Requirement influences the money supply and credit creation?

How has the historical use of Reserve Requirements evolved, particularly in major economies like the United States, and what is its current status?

Why are Reserve Requirements considered a critical tool for financial stability and regulatory compliance in the banking sector?

When might a central bank adjust the Reserve Requirement, and what are the specific, measurable effects of such a change on bank lending and economic activity?

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