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Balances banks hold at the central bank, used within the monetary and payments system.
When customers transfer money between banks, the banks can settle the transfer by moving central-bank balances. Central-bank lending, asset purchases and other operations can change the aggregate quantity of reserves. A payment between two banks generally redistributes existing reserves rather than changing the system’s total. Requirements and remuneration differ between countries and over time.
Suppose Bank A holds 100 million in reserves and Bank B holds 50 million. A customer transfers 10 million from A to a customer at B, and the banks settle directly in central-bank money. A’s reserves fall to 90 million; B’s rise to 60 million. Their combined reserves remain 150 million, while the customer deposits move between the banks.