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In the special case of 100-percent-reserve banking, the reserve ratio is 1, the money multiplier is 1, and banks do not create money.
What transpires in a banking system with 100% reserves?
In a financial system with 100 percent reserves, banks use all deposits as reserves, leaving them with no extra reserves. As a result, no new loans will be made. In this scenario, banks merely convert cash into deposits.
Money multiplier formula: what is it?
The money supply grows by more than one dollar when the monetary base grows by one dollar. The money multiplier is an increase in the available currency. Money (M) is equal to both publically held money (C) and bank deposits (D).
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