Minimum Required Reserves (MRR)
What are the minimum required reserves?
Minimum Required Reserves defines the requirement for the clients to have a particular sum of money as reserves on their actual accounts in the financial establishments. The term commonly appears in finance, in such institutions as banks, investment firms, and other financial establishments. The MMR stands for funds that are required to be present on the client’s account in the financial establishment. Every financial establishment has its requirements regarding the minimum amount of money which the client must hold on the account.
If the capital is not sufficient, the transaction or any other operation with a credit/debit card of the holder will be refused and the holder will be asked to add some funds in order to conduct some operations with it.
Minimum required reserves are very relevant when it comes to the amount hold on the person’s bank account. This type may be usual for some merchants that require to freeze some amount of money alongside or before the actual purchase (e.g. car hire where clients need to have a certain deposit).
It also happens in banks, which have to hold a specific proportion of funds in the main bank. The proportion can also be defined as MRR. Nowadays, this system is applied as a tool for monetary policy. For instance, countries apply MRR as a way of the monetary regulation whereas various countries use it in order to assist in short-term liquidity management, and, moreover, to regulate the unpredictability of short-term interest rate.