Frequently Asked Questions...
What will happen to bank reserves and the money supply if people decide to hold their currency?
What will happen to bank reserves and the money supply if people decide to hold their currency, and they convert bank deposits into currency by cashing checks, other things being equal?
Answer:
Banks go out of business. They give us interest when we deposit money because they use it to lend to others and get money back. If nobody put money in banks, they wouldn't have sufficient amounts of currency to invest/lend and would go out of business.
Currency Bank
Understanding Money & Banking, Pt. 6 - Legal Tender
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