Difference between revisions of "Goldsmiths' principle"
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| − | Goldsmiths' principle, | + | 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. |
Revision as of 00:17, June 24, 2007
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.