Base money refers to the most basic form of money in a country's monetary system, issued by ** banks and held by depository companies (such as commercial banks). It usually consists of two main components: the bank's currency issuance and the reserves of the depository company.
1.* Bank Currency Issuance:A bank is a country's currency issuing agency, which is responsible for issuing banknotes and coins and controlling the amount of money. **Cash issued by banks is part of the base currency as it is a legal means of payment.
2.Reserves for depository companies:Depository companies include commercial banks, among others, which accept deposits and provide loans and other financial services. These depository companies are required to maintain a certain percentage of reserves with ** banks in order to meet the needs of customers for withdrawals and maintain the stability of the financial system. Reserves can be in one of two ways:
Statutory Reserve Amount: According to the regulations of **Bank, depository companies are required to maintain a certain percentage of deposit reserves in **Bank. This is mandatory and an important measure to ensure financial stability and payment security.
Excess Reserve Reserve: Excess Reserve Requirement is the portion of the depository company that is retained by the depository company in excess of the statutory reserve requirement in the bank. This is an additional reserve voluntarily retained by depository companies to better manage risk and respond to undesirable market demand.
Note: Cash on hand at commercial banks (e.g. cash at ATMs) is also considered part of the reserve because they are used to meet customer withdrawal needs.
*The bank's balance sheet counts cash on hand along with cash in circulation as part of the issuance of money as they circulate in the market.
Reserves are deposits placed with the central bank, so the central bank has direct control over them, but the money in circulation and the cash in the bank warehouse cannot be used directly.
These are the main components of the base currency and the related knowledge development. Base money plays an important role in the financial system, and it has a profound impact on the stability of the economy and the implementation of monetary policy. February** Dynamic Incentive Program