# central banking using the term reserve

The central bank of united states is called federal reserve and central bank of india is called Reserve bank of india. What does the term reserve in central bank mean??

It refers to the reserves that banks have to hold in fractional reserve system. A fractional reserve system is a monetary arrangement where bank is allowed to use depositors money for loans as long as they keep a fraction of it as a reserve. For example, if reserve requirement is set to 10% if you deposit 100\$in your bank they must keep 10\$ and they can lend the rest 90\\$.