With a 10% reserve ratio, for every 100 rupees deposited, a bank keeps 10 rupees with the RBI and can lend out 90. That loan gets deposited again, allowing another bank to lend 81 rupees, and so on, creating new money. In theory, this multiplies the initial deposit.
But from my desk at the RBI, I see this isn't some automatic machine. It depends on whether people want loans. Here in Gangtok, after the landslides, no amount of reserve tweaking made the tea co-operative seek credit for new trucks.
My little library's story is the same. The theory said I couldn't run it on a pension. But the community's need for the space, and those kids sharing tongba, created value no bank balance sheet could capture.
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