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The effect of people holding part of the increase in the money supply as currency, rather than depositing it so that it can be used to create more loans

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What is currency drain ratio?

The currency drain ratio is a financial metric that measures the proportion of a country's money supply that is held outside of its banking system, often in the form of cash. It indicates the amount of currency that is effectively "drained" from the economy and not available for lending or investment within banks. A higher currency drain ratio can suggest a lack of confidence in the banking system or economic instability, leading individuals to prefer holding cash. This ratio is important for policymakers as it can impact monetary policy and liquidity in the economy.


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