The monetary multiplier is the process that allows you to "multiply" or increase the amount of money to banks starting from an initial amount.

This process occurs since banks must keep in their reserves a minimum amount of money called the cash ratio (amount that is determined by the Central Bank of Spain). From this minimum amount is how you get money from the bank, because depending on how large the percentage is, you will get more or less. Normally, an amount is usually determined that is not more than 10% of the initial amount of money deposited.

The formula for the money multiplier is: m = 1 / c, considering the variables m ("money multiplier") and c ("cash ratio").

The application of the formula is:

m = 1/10% = 10 -> Deposit * m = Money generated

Example: € 1000 deposit -> € 1000 * 10 = € 10.000

The € 1000 deposited have generated € 10.000 in the market.

Knowing this, we will now talk about the procedure by which money is created. The cash ratio is the minimum amount that the booth must leave "untouched". This amount cannot be used, but the rest can. Suppose it is the remaining 90%. Well, 10% is made on the total money that the individuals of that bank have deposited in it, so the remaining 90% may be used for other causes that the bank deems appropriate.

In this case, 90% directs you to lend it. Being able to re-deposit that money in the bank, being 10% of that 90% borrowed the minimum amount to leave in the bank, and the rest to be reinvested. It is a continuous process that allows you to "multiply" the money that you do not really have to meet the monetary needs of customers.

That is why it is said that applying the monetary multiplier is like generating play money, because it does not really exist. But if we think about it, really each client can have the money they have deposited at all times.