Give reasons or explain. 1. Clearing house system economises the use of cash.

Give reasons or explain.

1. Clearing house system economises the use of cash.
Answer: 

1. All the commercial banks are mandatorily required to keep a certain percentage of their deposits with the Central Bank. The Central Bank accepts deposits from the commercial banks and helps in the settlement of interbank claims. This is regarded as a clearing house function of commercial banks. As a clearing house it settles inter-bank claims and reduces the need for cash reserves by the commercial banks.

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