CRR also known as cash reserve ratio was introduced in India in 1950 as a means to safe guard consumer deposits in private banks as well as ensure liquidity in the banking sector. Since then, it has become an important monetary tool in the reserve banks arsenal to control money supply in the economy. When the RBI feels that the money supply is increasing and causing an upward pressure on inflation, the RBI has the option of increasing the CRR thereby reducing the deposits available with banks to make loans and hence reducing the money supply and inflation.
In the United States, a reserve requirement (or liquidity ratio) is a minimum value, set by the Board of Governors of the Federal Reserve System, while Bank of England is the supervisory authority in United Kingdom.
Tags: board of governors of the federal reserve, cash reserve ratio, control, CRR, federal reserve system, liquidity, liquidity ratio, means, reserve banks, tool
