Currency-to-Deposit Ratio

What is this formula?

The Currency-to-Deposit Ratio measures the amount of physical currency held by the public relative to the amount of money kept in bank deposits.

It is an important indicator in monetary economics because it influences the money multiplier and the effectiveness of the banking system in creating money.

When to use it

Use this formula when analyzing money creation, banking behavior, financial development, and monetary policy transmission.

Example

Currency held by the public:

C = 300 billion USD

Bank deposits:

D = 1,200 billion USD

Formula:

CD = C / D

Substitution:

CD = 300 / 1200

CD = 0.25

Result:

The public holds currency equal to 25% of total bank deposits.

Applications

- Money multiplier analysis

- Monetary policy studies

- Banking system evaluation

- Financial development research

- Macroeconomic modeling

Note

This ratio varies significantly across countries and over time. Higher values generally indicate a stronger preference for cash holdings, while lower values suggest greater reliance on the banking system and electronic payment methods. Alternative definitions may use broader monetary aggregates depending on the analytical framework.