Currency deposit ratio

Indian Economy glossary

Also called: CDR · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 12, Ch 3 "Money and Banking"

Meaning

The currency deposit ratio (cdr) is the currency people hold in hand divided by the money they keep as bank deposits.

cdr = currency held by the public ÷ bank deposits of the public

It shows people's cash habit. It also affects the money multiplier, which is how many times bank lending can expand the money base. When the cdr is low, more money stays in banks, so banks can lend more and create more money.

Formula for the money multiplier:

m = (1 + cdr)/(cdr + rdr)

where rdr is the reserve deposit ratio. A lower cdr raises m.

Example

Suppose people hold ₹20 in cash for every ₹100 in bank deposits. The cdr is 0.2. As the banking habit spreads through financial inclusion and digital payments, people keep less cash. The cdr falls and the multiplier rises.

Don't confuse with

  • Reserve deposit ratio (rdr): this measures how much banks hold as reserves. The cdr measures how much cash the public holds.

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