why do we say that commercial banks create money while we also say that the central bank has the role right to issue currency?
Answers
Answered by
2
Right to issue currency is exercised by the RBI but it is the commercial bank which are responsible to create money.
Commercial Banks accept deposits from public(the public who has excess money) in return of interest, and they lend those deposits as loans to the people who need it for an interest rate which is higher than the one given to the depositers, in such a way through the means of deposits, loans and interests, the commercial banks create money.
The RBI just is the issuer of currency notes
Commercial Banks accept deposits from public(the public who has excess money) in return of interest, and they lend those deposits as loans to the people who need it for an interest rate which is higher than the one given to the depositers, in such a way through the means of deposits, loans and interests, the commercial banks create money.
The RBI just is the issuer of currency notes
Similar questions