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# Bank Reserves

## Definition

The gold and silver money that banks must keep on hand to meet demands for redemption of their notes. The appropriate level of reserves depends on the quantity of notes in circulation and the confidence of the public.

## Source Chapter

Book II, Chapter 2

## Context

Smith explains how banks must maintain adequate reserves to meet demands for note redemption, analysing the relationship between reserves, circulation, and bank stability. He shows how excessive note issuance forces banks to maintain larger reserves.

## Economic Domain

Regulation

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