Importance The article deals with the issues of required reserves ratio as a monetary policy tool. Objectives The article aims to increase insight into the theoretical concepts of impact of reserves requirements for commercial banks on monetary processes. Methods For the study, I used formal logic, systems approach, and statistical data analysis. Results The article provides a detailed description of the macroeconomic mechanism of the operation of mandatory reserves requirements. The article presents a developed system of monetary equations, which helps understand the effect of changing the mandatory reserves ratio on the amount of both hard cash and non-cash money in the economy (depending on the need). Conclusions Because of the existence of a stable balance between the demands for cash and non-cash money (in the short and medium terms), the change in the mandatory reserves ratio is accompanied by a change in the amount of both. In this regard, the central bank cannot use the mandatory reserves ratio as an instrument of monetary policy without changing the amount of cash in the economy.
Keywords: central bank, currency, non-cash money, monetary base, rate of mandatory reserves
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