Question

a) Based on BNM or news report, explain the latest changes in the statutory reserve requirement (SRR) for Malaysia. Your explanation should also include the changes to money supply and the possible impact of the change.

b) Based on your answer above, select an economic problem where that impact would work and explain what could happen.

Answer 1

a)

The process of money creation is a crucial concept for understanding the role that money plays in an economy. Its potency depends on the amount of money that banks keep in reserve to meet the withdrawals of its customers. This practice of lending customers’ money to others on the assumption that not all customers will want all of their money back at any one time is known as fractional reserve banking.

Bank Negara Malaysia has declared a 100-premise point cut in the statutory reserve requirement (SRR) proportion from 3% to 2% in March 20.

This would means it will increase the money supply in the economy.

b)

Bringing down of 100 premise focuses in the SRR was more than anticipated, recommending that financial development stayed a worry in the midst of feeble oil costs and the Covid-19 pandemic. Given the impact on the economy , this move can improve the liquidity in the economy and banking system and improve the availability of the funds for the businesses. It can help to improve the liquidity, help the businesses from going bankrupt and help to improve the aggregate demand in the economy.