Final answer:
Central banks accept non-vault cash reserves from banks to fulfill their reserve requirement. This requirement is a key tool within monetary policy to regulate a bank's liquidity and the economy's money supply velocity.
Step-by-step explanation:
The central banks accept as reserves from the banks and thrifts any portion of their mandated reserve requirement not held as vault cash. The reserve requirement is the percentage amount of its total deposits that a bank is legally obligated to hold either as cash in their vault or deposit with the central bank. This requirement ensures that a bank maintains a certain level of liquid assets to meet withdrawal demands. Banks must meet this requirement to comply with monetary policy regulations. If a bank has excess reserves, they can lend it out or use it for investments, but the minimum reserve requirement must be satisfied as a precautionary measure and also as a way to control the velocity of money in the economy.
The concept of the reserve requirement is closely linked to monetary policy, where central banks like the U.S Federal Reserve use tools such as the adjustment of reserve requirements to manage economic stability, influencing borrowing, spending, and the overall speed at which money circulates in the economy.