What is the significance of centralized cash reserves with the central bank?
Dear Student,
In India or in the world the Commercial banks feel convenient to keep their reserve requirements with the central bank because its notes command the greatest confidence and prestige and the government's banking transactions are conducted by this institution. In fact, the establishment of central banks makes it possible for the banking system to secure the advantages of centralised cash reserves.
The significance of Centralised Cash Reserves (CCR) lies in the following facts:
(a) Centralization of cash reserves in the central bank is a source of great strength to the banking system of the country as it inspires the confidence of the public in the commercial banks.
(b) Centralised cash reserves can form the basis of a much longer and more elastic credit structure than those scattered among numerous individual commercial banks.
(c) Centralised reserves enable the central bank to provide financial accommodation to the commercial banks which are in temporary difficulties. In fact the central bank functions as the lender of the last resort on the basis of the centralized cash reserves.
In India or in the world the Commercial banks feel convenient to keep their reserve requirements with the central bank because its notes command the greatest confidence and prestige and the government's banking transactions are conducted by this institution. In fact, the establishment of central banks makes it possible for the banking system to secure the advantages of centralised cash reserves.
The significance of Centralised Cash Reserves (CCR) lies in the following facts:
(a) Centralization of cash reserves in the central bank is a source of great strength to the banking system of the country as it inspires the confidence of the public in the commercial banks.
(b) Centralised cash reserves can form the basis of a much longer and more elastic credit structure than those scattered among numerous individual commercial banks.
(c) Centralised reserves enable the central bank to provide financial accommodation to the commercial banks which are in temporary difficulties. In fact the central bank functions as the lender of the last resort on the basis of the centralized cash reserves.
