Cash ratio

economic-dictionary

The cash ratio is the percentage of money that a financial institution maintains in its liquid reserves in the Central Bank (BC) of its country. It is also known as the bank reserve ratio, reserve requirement ratio, reserve requirement rate, or bank reserve requirement.

When talking about economics and finance, the term cash ratio is used to define the legal cash ratio or the mandatory cash ratio. That is, the money that a financial institution must maintain without being able to be used to make loans or invest. In other words, the percentage of money that must be kept in the box (account in the BC). The monetary authorities of each country establish a mandatory minimum intended to be compulsorily compliant, thus allowing financial institutions to have a higher percentage in cash, but in no case less. It is an instrument that is commonly used as monetary policy. The lower the cash ratio, the greater the amount of money on the market. In larger and more real terms, the cash ratio (C) that a bank has is calculated as its reserves (R) among all the deposits granted (D).

The function of the cash ratio is that the money multiplier is not excessively high. The objective is to be able to guarantee the short-term solvency of the banks and that the funds they deliver do not multiply in an uncontrolled way.

Example: If the cash ratio is 1%, it means that when you take € 1,000 to a new bank, it must save € 10 in its reserves. Normally, banks keep these reserves in the Central Bank of the country.

The cash ratio by country

This percentage varies by country or currency. Let's look at the cash ratio of various countries in the world:

Country Cash ratio Central bank
Australia Does not have Reserve Bank of Australia
New Zealand Does not have Reserve Bank of New Zealand
Sweden Does not have Reserve Bank of Sweden
USA Between 0 and 10% Federal Reserve (FED)
Euro zone 1,00% European Central Bank (ECB)
Czech Republic 2,00% Czech National Bank
Hungary 2,00% Hungarian National Bank
South Africa 2,50% Reserve Bank of South Africa
Switzerland 2,50% Bank of Switzerland
Latvia 3,00% Bank of Latvia
Poland 3,50% National Bank of Poland
Romania 8,00% National Bank of Romania
Russia 4,00% Central Bank of the Russian Federation
chili 4,00% Central Bank of Chile
India 4,00% Reserve Bank of India
Bangladesh 6,00% Bank of Bangladesh
Lithuania 6,00% Bank of lithuania
Nigeria 20,00% Central Bank of Nigeria
Pakistan 5,00% State Bank of Pakistan
Taiwan 7,00% Bank of Taiwan (supervised by the People's Bank of China)
Turkey 8,50% Central Bank of the Republic of Turkey
Jordan 8,00% Central Bank of Jordan
Iceland 2,00% Central Bank of Iceland
Israel 9,00% Bank of Israel
Mexico 10,50% Bank of Mexico
Bulgaria 10,00% National Bank of Bulgaria
Croatia 14,00% Croatian National Bank
Costa Rica 15,00% Central Bank of Costa Rica
Hong Kong Does not have Hong Kong Monetary Authority
Brazil 45,00% Central Bank of Brazil
China 17,00% People's Bank of China

Source: Central banks of the respective countries.

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