Understanding Fractional Reserve Banking: How It Fuels Economic Growth
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What is fractional reserve banking, and why is it the key to ba... | Filo
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Fractional reserve lending is a banking practice where a bank is required to hold only a fraction of customer deposits in reserve, while it lends out the remaining portion. This system is prevalent in modern banking and is a fundamental concept in the creation of money within an economy. Here’s how it works: 1. Reserve Requirement: Governments and central banks typically set a reserve requirement, which is the percentage of customer deposits that banks must keep in reserve. For example, if the r
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