Question

State whether the following statement is True or False.
Clearing house system economizes the use of cash.

• A. True
• B. False

Answer 1

The correct option is A True

The central bank acts as clearing house for all commercial banks. It helps to clear the day to day interbank transactions. Since all commercial banks have their accounts with the central banks, the claims of banks against each other are settled by simple transfer i.e. by debit and credit entries in their accounts.

Due to clearing house, interbank transfer of funds can be settled without using cash and therefore it is economical and time saving to the commercial banks.

Thus the clearing house system which becomes possible because all commercial banks keep their accounts with the central bank of the country, economizes use of cash.