Difference between revisions of "Goldsmiths' principle"
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| − | Goldsmiths' principle, discovered centuries ago by English goldsmiths, is that banks need not maintain 100% of the deposits on hand as reserves. Customers are not likely to withdraw all their money at the same time, so banks need keep only a fraction of the deposits on hand at the bank, and can [[loan]] out much of the deposits to earn [[interest]]. | + | The '''Goldsmiths' principle''', discovered centuries ago by English goldsmiths, is that banks need not maintain 100% of the deposits on hand as reserves. Customers are not likely to withdraw all their money at the same time, so banks need keep only a fraction of the deposits on hand at the bank, and can [[loan]] out much of the deposits to earn [[interest]]. |
[[category:economics]] | [[category:economics]] | ||
[[category:finance]] | [[category:finance]] | ||
Revision as of 23:30, March 4, 2008
The Goldsmiths' principle, discovered centuries ago by English goldsmiths, is that banks need not maintain 100% of the deposits on hand as reserves. Customers are not likely to withdraw all their money at the same time, so banks need keep only a fraction of the deposits on hand at the bank, and can loan out much of the deposits to earn interest.