This report broke on my Google News Uruguay filter, just as I was making some notes for an upcoming Cost of Living post. That’s probably a few days away, but yes, we are having some inflation problems. This move by the central bank, BCU, to raise the fractional reserve requirements is a big one, and it does make a lot of sense. I don’t know if it will help the inflation problem, but it does help keep our banking and monetary system a lot less likely to crash than, for example, the USA.
Relatively short explanation of the “reserve” requirement concept. For a filmed version, re-watch “It’s a Wonderful Life” for Jimmy Stewart’s explanation of why the money on deposit isn’t in the bank. Except nowadays it’s more like Mr. Potter’s bank, not the good old Building and Loan!
Simply put, when you deposit money into the bank, it creates new money. Continue reading Uruguay raises reserve requirement to fight inflation