China's evolving reserve requirements
This paper examines the evolving role of reserve requirements as a policy tool in China. Since 2007, the Chinese central bank (PBC) has relied more on this tool to withdraw domestic liquidity surpluses, as a cheaper substitute for open-market operation instruments in this period of rapid FX accumulation. China's reserve requirement system has also become more complex and been used to address a range of other policy objectives, not least being macroeconomic management, financial stability and credit policy. The preference for using reserve requirements reflects the size of China's FX sterilisation task and the associated cost considerations, a quantity-oriented monetary policy framework challenged to reconcile policy dilemmas and tactical considerations. The PBC often finds it easier to reach consensus over reserve requirement decisions than interest rate decisions and enjoys greater discretion in applying this tool. The monetary effects of reserve requirements need to be explored in conjunction with other policy actions and not in isolation. Depending on the policy mix, higher reserve requirements tend to signal a tightening bias, to squeeze excess reserves of banks, to push market interest rates higher, and to help widen net interest spreads, thus tightening domestic monetary conditions. There are, however, costs to using this policy tool, as it imposes a tax burden on Chinese banks that in turn appear to have passed a significant portion of this cost onto their customers, mostly depositors and SMEs. However, the pass-through onto bank customers appears to be partial.
|Date of creation:||Nov 2011|
|Contact details of provider:|| Postal: Centralbahnplatz 2, CH - 4002 Basel|
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guonan Ma & RobertN McCauley, 2008. "Efficacy Of China'S Capital Controls: Evidence From Price And Flow Data," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 104-123, 02.
- Carlos Montoro & Ramon Moreno, 2011. "The use of reserve requirements as a policy instrument in Latin America," BIS Quarterly Review, Bank for International Settlements, March.
- Simon T Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 11/36, International Monetary Fund.
- Hongyi Chen & Qianying Chen & Stefan Gerlach, 2011. "The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending," Working Papers 262011, Hong Kong Institute for Monetary Research.
- Guonan Ma, 2007.
"Who Pays China's Bank Restructuring Bill?,"
Asian Economic Papers,
MIT Press, vol. 6(1), pages 46-71, February.
- Guonan Ma, 2006. "Who Pays China’s Bank Restructuring Bill?," Working Papers 2006-04, CEPII research center.
- Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, vol. 78(s1), pages 53-89, 09.
- Claudio Borio & Piti Disyatat, 2009. "Unconventional monetary policies: an appraisal," BIS Working Papers 292, Bank for International Settlements.
- repec:cii:cepiie:2010-april-122-4 is not listed on IDEAS
- Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.
- Paul Conway & Richard Herd & Thomas Chalaux, 2010. "Reforming China's Monetary Policy Framework to Meet Domestic Objectives," OECD Economics Department Working Papers 822, OECD Publishing.
- Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," International Economics, CEPII research center, issue 122, pages 5-39.
- Guonan Ma & Wang Yi, 2010. "China's high saving rate: myth and reality," BIS Working Papers 312, Bank for International Settlements.
- M S Mohanty & Philip Turner, 2008. "Monetary policy transmission in emerging market economies: what is new?," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 1-59 Bank for International Settlements.
- Claudio Borio & Ilhyock Shim, 2007. "What can (macro-)prudential policy do to support monetary policy?," BIS Working Papers 242, Bank for International Settlements.
- Yueh-Yun C. O’Brien, 2007. "Reserve requirement systems in OECD countries," Finance and Economics Discussion Series 2007-54, Board of Governors of the Federal Reserve System (U.S.).
- He, Dong & Wang, Honglin, 2012. "Dual-track interest rates and the conduct of monetary policy in China," China Economic Review, Elsevier, vol. 23(4), pages 928-947.
- Dong He & Honglin Wang, 2011. "Dual-Track Interest Rates and the Conduct of Monetary Policy in China," Working Papers 212011, Hong Kong Institute for Monetary Research.
- He, Dong & Wang, Honglin, 2011. "Dual-track interest rates and the conduct of monetary policy in China," BOFIT Discussion Papers 21/2011, Bank of Finland, Institute for Economies in Transition.
- repec:cii:cepiei:2010-april-122-4 is not listed on IDEAS
- Yoon Je Cho & Robert N McCauley, 2003. "Liberalising the capital account without losing balance: lessons from Korea," BIS Papers chapters,in: Bank for International Settlements (ed.), China's capital account liberalisation: international perspective, volume 15, pages 75-92 Bank for International Settlements. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bis:biswps:360. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If references are entirely missing, you can add them using this form.