A currency drain occurs when the
A) non-bank public increases its holdings of currency outside the banking system.
B) Reserve Bank sells government securities.
C) Reserve Bank increases the required reserve ratio.
D) banks reduce the number of loans they create with their excess reserves.
E) None of the above.

Question

Quizplus · Accepted Answer

A currency drain refers to the situation where the non-bank public decides to hold more of its wealth in the form of currency rather than deposits in the banking system. This reduces the amount of reserves available to banks for creating loans.

A Currency Drain Occurs When the