Liquidity is the bank's lifeblood, reflecting its financial strength, solvency, and stability. However, in the current economic turmoil, cash in hand or cash outside the bank stands at 29 billion. How the mattress money can contribute to the economy from the border perspective.
☑️Mattress Money
☑️Money Multiplier
✅Mattress money refers to funds that are kept outside the formal banking system, often held at home or in informal channels, and not deposited in banks. This is also known as currency outside banks. According to data from Bangladesh Bank, the amount of mattress money currently stands at 2917 billion BDT. The large volume of money outside the banking system contributes to a liquidity crisis for banks, as these funds are not available for lending or investment.
✅The money multiplier describes the process of money creation within the banking system, illustrating how the total money supply expands in response to an initial deposit.
For example, if 100 BDT is deposited into a bank, and the bank is required to hold 17% of that amount in reserves (comprising 13% SLR and 4% CRR), the remaining 83 BDT becomes available for lending. When the bank lends out that 83 BDT, it eventually gets redeposited in another bank, where a similar reserve requirement applies, leaving 66 BDT available for further lending. This process continues, multiplying the money supply. In this scenario, the initial 100 BDT deposit can potentially create 1,000 BDT through the money multiplier effect.
However, If individuals and businesses deposit their idle cash into banks, the formal banking system can leverage those funds for lending and investments, stimulating economic growth.
☑️Money Multiplier
✅Mattress money refers to funds that are kept outside the formal banking system, often held at home or in informal channels, and not deposited in banks. This is also known as currency outside banks. According to data from Bangladesh Bank, the amount of mattress money currently stands at 2917 billion BDT. The large volume of money outside the banking system contributes to a liquidity crisis for banks, as these funds are not available for lending or investment.
✅The money multiplier describes the process of money creation within the banking system, illustrating how the total money supply expands in response to an initial deposit.
For example, if 100 BDT is deposited into a bank, and the bank is required to hold 17% of that amount in reserves (comprising 13% SLR and 4% CRR), the remaining 83 BDT becomes available for lending. When the bank lends out that 83 BDT, it eventually gets redeposited in another bank, where a similar reserve requirement applies, leaving 66 BDT available for further lending. This process continues, multiplying the money supply. In this scenario, the initial 100 BDT deposit can potentially create 1,000 BDT through the money multiplier effect.
However, If individuals and businesses deposit their idle cash into banks, the formal banking system can leverage those funds for lending and investments, stimulating economic growth.
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