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Fractional reserve banking is a system where banks keep only a small fraction of deposits as reserves, often historically around 10%, and lend out the rest to borrowers 💰 When you deposit money, the bank uses a portion for lending, allowing the same funds to circulate multiple times within the economy. The process creates a money multiplier effect, where an initial deposit can theoretically generate several times its value in the banking system. When loan recipients redeposit borrowed funds, th
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