Reserves, Deposits, and Money Multipliers in Pre-Crisis and Crisis Lebanon

We will start this note with a simple theoretical, but essential, discussion. Accordingly, two of the most important operational concepts in monetary economics are the money multiplier and the velocity of circulation. The money multiplier captures the increase in money supply that arises from the process of deposit creation by the banking system: an initial increase in deposits will increase reserves that banks are required to keep only a fraction of, while the rest will be extended as loans and investments that in turn will generate new deposits into banks and so on, such that in the process more deposits are accumulated and more money is created.

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Reserves Deposits and Money Multipliers in Pre-Crisis and Crisis Lebanon


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