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Cash Reserve Ratio

Cash Reserve Ratio is a percentage of the amount of attracted customer funds established at the level of legislation, which commercial banks are required to keep as a deposit in the central bank or in their own form of cash. Mandatory reserves, which credit institutions make at the request of the central bank, are the guarantor of the full and timely fulfillment of obligations to their customers.

The reserve ratio is one of the instruments of the monetary policy pursued by the central bank, with the help of which the regulator controls the level of money supply in the country’s economy. By raising the required reserve requirements, the central bank reduces the amount of money that banks can lend and, as a result, increases interest rates. If the regulator plans to increase the volume of lending in the economy, then, on the contrary, it reduces the interest on mandatory reserves.

In Russia, the reserve ratios established by the Bank of Russia may vary depending on the type of obligations (obligations to non-resident legal entities, to individuals, and other obligations), the term of obligations (long-term and short-term obligations), and currency (rubles and foreign currency), as well as from the type of credit institution (banks with a universal license, basic license, and non-bank credit institutions).

For example, in Russia, since August 1, 2018, the cash reserve ratio on liabilities in foreign currency has been set at 8%.

The separate reserve ratio for foreign currency liabilities is also valid in Turkey, and as of September 2021, it is 23%. In China, the required reserve ratio is set separately for big banks, and as of February 2022, it is 11.5%. In Brazil, there is a cash reserve ratio on demand deposits, and it is equal to 21%. The graph below shows the dynamics of the required reserve ratios in these countries.

Central banks also set reserve requirements for credit institutions in Indonesia, Nigeria, Angola, India, Sri Lanka and other countries around the world. The chart below shows the dynamics of the required reserves in a number of countries.

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