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Credit Creation Calculator

Quickly work out the total deposits, amount of credit created, and money multiplier produced across the banking system from an initial deposit and a reserve ratio.

Input

thousand $
%

Result

Total deposits created

$1,000,000.00

The total deposits an initial deposit of $100,000.00 generates across the whole banking system

Credit created

$900,000.00

Reserve ratio

10 %

Money multiplier (1 / reserve ratio)

10×

How it works

  • Credit creation is the process by which banks keep only a fraction of each deposit as reserves and lend out the rest, repeating the cycle so that the banking system as a whole generates deposits worth many times the original amount placed (the initial deposit).
  • Total deposits are calculated as 'initial deposit ÷ (reserve ratio ÷ 100)', which is the same as 'initial deposit × money multiplier'. The money multiplier is found with '1 ÷ (reserve ratio ÷ 100)'.
  • Credit created equals 'total deposits − initial deposit'. This is the total amount of new deposits created in the system thanks to the initial deposit.
  • Using it is simple: enter the initial deposit (the amount first placed in the bank) and the reserve ratio as a percentage, and the total deposits, credit created, and money multiplier are shown automatically.
  • For example, with an initial deposit of 100 thousand and a reserve ratio of 10%, the money multiplier is 10×, total deposits are 1,000 thousand, and credit created is 900 thousand. The lower the reserve ratio, the larger the money multiplier.
  • This tool assumes an idealized model in which everything except required reserves is lent out and there is no cash leakage. Actual credit creation is affected by cash holdings and excess reserves, so use the result as a rough guide for learning and estimation.