Question: Some developing countries have suffered banking crises in which depositors lost part or all of their deposits (in some countries there is no deposit insurance).

Some developing countries have suffered banking crises in which depositors lost part or all of their deposits (in some countries there is no deposit insurance). This type of crisis decreases depositors’ confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country? What would be the effect on reserves and the monetary base?

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