Overview:

The cash reserve ratio (CRR) is a monetary policy tool used by central banks to control the amount of money in circulation and ensure stability in the financial system. It is a percentage of total deposits that commercial banks are required to keep with the central bank.

Explanation:

The given statement states that the cash reserve ratio is a percentage of total deposits that the central bank keeps with commercial banks by law. Let's break down the statement and evaluate its accuracy:

1. Cash Reserve Ratio (CRR):

- The cash reserve ratio is a monetary policy tool used by central banks to influence the money supply in the economy.

- It is a percentage of total deposits that commercial banks are required to maintain as reserves with the central bank.

- By adjusting the CRR, the central bank can control the amount of money available for lending and influence inflation and liquidity in the economy.

2. Central Bank and Commercial Banks:

- The central bank is the authority responsible for regulating the country's money supply, interest rates, and financial stability.

- Commercial banks are financial institutions that accept deposits from individuals and businesses and provide loans and other financial services.

3. Legal Requirement:

- The cash reserve ratio is typically set by law or regulation, and commercial banks are obligated to comply with this requirement.

- The purpose of setting a CRR is to ensure that banks have a certain level of reserves to meet withdrawal demands and maintain stability in the financial system.

Based on the above explanation, we can conclude that the statement is True. The cash reserve ratio is indeed a percentage of total deposits that commercial banks are required to keep with the central bank by law.