The correct option is Public preference for holding cash relative to bank deposits.
Explanation
The Currency Deposit Ratio (CDR) is the ratio of money held by the public in currency to that they hold in bank deposits ($CDR = \frac{C}{D}$). It is a behavioral parameter that reflects the liquidity preference of households and firms.Option Analysis
- Public preference for holding cash relative to bank deposits is Correct: The CDR is primarily determined by the public's preference for holding liquid cash versus interest-earning deposits. This is influenced by factors such as payment habits, the availability of banking infrastructure (ATMs, branches), and seasonal demands (e.g., cash holdings increase during festive seasons).
- Statutory regulations prescribed by the Reserve Bank of India is Incorrect: Statutory requirements set by the RBI, such as the Cash Reserve Ratio (CRR), determine the Reserve Deposit Ratio, not the Currency Deposit Ratio.
- Availability of gold reserves with the monetary authority is Incorrect: Gold reserves are part of the central bank's assets and may back currency issuance, but they do not dictate the ratio in which the public holds cash versus deposits.
- Size of the government’s fiscal deficit is Incorrect: The fiscal deficit refers to the government's borrowing needs. While it impacts the macroeconomy, it is not the direct determinant of the public's choice between cash and deposits.
Key Takeaway:
The Currency Deposit Ratio is determined by the public, whereas the Reserve Deposit Ratio is determined by central bank regulations and bank prudence. An increase in the CDR reduces the money multiplier.