A situation that occurs when a wide number of depositors lose faith in all banks, or more specifically, all banks readily available to them, and thus don’t redeposit in other banks but rather hold their currency outside the banking system. In other words, the flight to currency involves a widespread conversion of deposits into currency. If the flight out of deposits and into currency is not offset, a systemic contraction in the banking industry and in the money supply would ensue. This is exactly what happened in the Great Depression.
In technical parlance, the flight to currency constitutes a significant rise in the currency/deposit ratio.
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