CRR and SRR

Introduction

Cash Reserve Ratio (CRR) (known as Nisbah Rizab Tunai in Malay) and Statutory Reserve Ratio (SRR) (known as Nisbah Rizab Berkanun in Malay) is one of our monetary tools to stabilize the economy from negative externalities.

Background

Do you know, when you keep some money in our banks, not all 100% of the money is kept by the bank themselves, and not all the money is used to distribute loans.

Believe it or not, some of the money is kept by us, the Central Bank of Finance Department, and also, some of the money is not used to distribute for loans! Never heard of that, huh?

What is CRR?

In general, Cash Reserve Ratio, or known as CRR, minimum amount as specified by the Central Bank (like the US Federal Reserve, the Bank Negara Malaysia (BNM), the Monetary Authority of Singapore (MAS) or the Finance Department) to be maintained by the Commercial banks (like Citibank or Bank of LuX) of the public deposits with the Central Bank.

Basically, CRR is a mandatory monetary policy that requires Commercial Banks (like Basketball Bank) to keep a minimum portion of the money received by the customer's deposit in their bank. The ratio of the money that must kept in the Commercial Bank are set by the Central Bank (like Finance Department).

The Commercial Bank cannot use the money that was over the CRR ratio limit to distribute loans. Otherwise, the Commercial Bank will be penalized.

What is SRR?

In general, Statutory Reserve Ratio, or known as SRR, is the proportion of the deposit liabilities that Commercial Banks (like Basketball Bank) are required to keep as a cash deposit with the Central Bank (like the Finance Department).

Basically, SRR is a mandatory monetary policy that requires Commercial Banks (like Basketball Bank) to keep a minimum portion of the money received by the customer's deposit in the Central Bank (like the Finance Department).

The Commercial Bank must kept the deposited money that was under SRR with the Central Bank. Otherwise, the Commercial Bank will be penalized.

What does CRR and SRR used for?

CRR and SRR is used to stabilize the economy from economical recessions, deflation and inflation through loans.

Let's say an inflation of our economy were to be seen

Quick definition of inflation: Inflation is the increase of the prices of products and services in the market or economy. The cause of an inflation is because of high demand of products or services in the market or economy.

The agencies of QQ wants the members of QQ to buy less in the market to decrease the price of the products and services. To do that, the Finance Department would need to reduce the money in the member's of QQ bank.

If we increase the CRR and SRR, Commercial Banks like Basketball Bank will approved less of the requested loans, and rejected more of the requested loans by their customers. In that case, the money in their banks will remain low. Because of that, the demand of products and services in the market or economy from everyone will decrease.

That way, we'll be able to decrease the price of products and services in the market.

The same goes for an economical recession and deflation

Quick definition of an economical recession and deflation: Economical recession is an increase of unemployment rate across the members of QQ. While deflation is a decrease of the prices of products and services in the market or economy.

The agencies of QQ wants the members of QQ to buy more products and services to grow the economy. To do that, the Finance Department would need to increase the money in the member's of QQ bank.

If we reduce the CRR and SRR, Commercial Banks like Basketball Bank will approved more of the requested loans, and rejected less of the requested loans by their customers. In that case, the money in their banks will increase. Because of that, the demand of products and services in the market or economy from everyone will increase, and organizations will have to supply more on their products or service.

That way, organizations will hire more employees (staff) to supply their products or services. In that case, the unemployment rate across the members of QQ will decrease.

Is CRR and SRR useful for the Finance Department?

Yes, CRR and SRR is useful for the Finance Department as a monetary tool to stabilize the economy from negative externalities.

What is the current CRR and SRR rate?

The current Cash Reserve Ratio as of now is 0%.

The current Statutory Reserve Ratio as of now is 0%.