Enter the currency held by the public ($) and the deposits ($) into the Calculator. The calculator will evaluate the Currency Drain Ratio.
Related Calculators
- Excess Reserves Calculator
- Constant/Conditional Prepayment Rate (CPR) Calculator
- Spot Rate Calculator
- Days To Maturity Calculator
- All Business Calculators
Currency Drain Ratio Formula
CDR = C / D
Variables:
- CDR is the Currency Drain Ratio (C/D)
- C is the currency held by the public ($)
- D is the deposits ($)
To calculate the Currency Drain Ratio, divide the currency held by the public by deposits.
How to Calculate Currency Drain Ratio?
The following steps outline how to calculate the Currency Drain Ratio.
- First, determine the currency held by the public ($).
- Next, determine the deposits ($).
- Next, gather the formula from above = CDR = C / D.
- Finally, calculate the Currency Drain Ratio.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
currency held by the public ($) = 1000
deposits ($) = 2000
Frequently Asked Questions
What is the significance of the Currency Drain Ratio in banking?
The Currency Drain Ratio (C/D) is significant because it reflects how much currency the public chooses to hold relative to bank deposits. A higher ratio generally reduces the deposit base available for lending and can lower the money multiplier, which matters for liquidity conditions and how changes in the monetary base translate into broader money supply.
How can banks manage a high Currency Drain Ratio?
Banks cannot directly control how much cash the public wants to hold, but they can encourage deposit holding by improving account convenience (e.g., faster payments), offering competitive deposit rates, reducing fees, and promoting digital payment options that reduce the need to hold cash.
What impact does the Currency Drain Ratio have on monetary policy?
The Currency Drain Ratio affects monetary policy by influencing the money multiplier and the link between central bank actions (like changing the monetary base) and broader measures of money. If the public shifts toward holding more currency relative to deposits, the same level of base money may support fewer deposits, potentially dampening the transmission of some policy actions.
Can the Currency Drain Ratio affect individual savers and investors?
Yes. Changes in cash-vs-deposit preferences can influence banks’ funding conditions and, in turn, deposit and lending rates. A shift toward holding more currency can tighten deposit funding, while a shift toward deposits can increase bank funding availability, potentially affecting rates and credit conditions.
