Question

02. Explain the process of credit creation or money creation by commercial banks with the help of numerical example. OR All the currency issued by the central bank is its monetary liability. How?

Answer 1

Answer:

A commercial bank is a dealer of credit. It creates money based on cash deposits. Further, it issues new money through its loan operations and creates credit or expands the monetary base of a country. Therefore, this process of credit creation leads depositors to believe that they have money with the bank.