Full Form of CRR
Cash Reserve Ratio
CRR Full Form is Cash Reserve Ratio. CRR refers to the minimum amount of reserved funds or deposits that a bank has to maintain. It is often referred to as Reserve Requirement. In almost every country, CRR system is used to maintain balance in the financial system by depositing money to a central regulatory bank. Central banks of various countries decide the percentage of the bank’s total asset that the bank has to deposit as CRR.
This rate starts from as low as 1% and it ranges to as high as 30%. If the CRR increases, the total balance amount of a bank comes down. Many countries do not use this system. But, this system is indeed effective to maintain economical balance because it makes sure that a bank never runs out of funds to pay its customers and clients. CRR is deposited and preserved safely in forms of cash or any cash equivalent instrument.
The amount of CRR is determined through a mathematical calculation. The alteration, of CRR, generally has short-time or temporary disruptive effect on the financial conditions of the market. This is why many countries do not consider it as a monetary tool. CRR effectively decides and affect the borrowing or lending system of a bank, and help the economic stability in a country.