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Question
Give reason or explain.
Clearing house system economises the use of cash.
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Solution
All the commercial banks are mandatorily required to keep a certain percentage of their deposits with the Central Bank. The Central Bank accepts the 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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