The Money Creation Process desired, currency, generated, deposits, buying

whaler

Hi All,

Pg 362 of the CFA curriculum on Economics ---->

It says that curency drain ratio is 50 % and the desired reserve ratio is 10%.

However, it goes on to say that of the $100,000 excess reserves (generated by the Fed's buying of securities) that the bank lends, $33,333 drains off and is held outside the bank as currency. The other $66,667 remains in the bank as deposits.

Is this an assumption? cos i thought with the currency drain ratio being 50% the cash drained of should be $50,000.

Maybe I am being a bit thick here. Pls help.

Thanks