Interest Rates. Reservation ratios and Banking Regulations in China over a Long run Nicolas dai Olivia Sayakhom Lianⅸxi Xie Pengpeng Georg Talke
I R R R Interest nterest Rates, Reservation eservation Ratios, and Banking Regulations in China over a Long Run Nicolas Dai Ol ivia S kh aya om LianYixi Xie Pengpeng Georg Talke
Summary Theoretical background 2. China's central bank 3. Banking Regulations 4. Recent development of Monetary Policy
Summary 1. Th i l B k d Theoret ical Bac kgroun d 2. China s Central Bank ’s Central Bank 3. Banking Regulations 4. Recent Develo pment of Monetary Policy
Theoretical Background: Interest Rates The interest rate r measures the cost of borrowing money Inversely related with Investment Graph about interest and investment 會巾↓
Theoretical Background: Interest Rates The interest rate r measures the cost of borrowing money Inversely related with Investment I Graph about interest and investment r I r I
Theoretical Background: Money Multipl er Fractional-reserve banking Commercial banks must keep some part of customer's deposits in an account at the central bank E.g. The reserve requirement is 10%.Then for every 100e deposit, commercial banks have to put 10E in their account at the central bank and can use 90e to buy other assets
Theoretical Background: Money Multiplier Fractional -reserve banking Commercial banks must keep some part of customer’s deposits in an account at the central ban k ◦ E.g. The reserve requirement is 10%. Then for every 100 € deposit commercial banks have to deposit, commercial banks have to put 10€ in their account at the central bank and can use 90 € to buy other assets
Theoretical Background: Money Multiplier Example: Reserve Requirement: 10% John Doe One deposits 1000E in Bank A Bank a deposits the required reserve in the central bank and lends the remain to john Doe Two, who deposits it in bank b and so on Bank As lending out 900e =1000≈09 Bank bs lending out 8|0E =900*0.9 Total money supply 10,000E =)(1000*0.90)
Theoretical Background: Money Multiplier Example: Reserve Requirement: 10%. John Doe One deposits 1000€ in Bank A. Bank A deposits the Original Deposit in Bank A 1000€ required reserve in the central bank and lends the remain to John Doe Two, who deposits it in Bank B and so on. Bank A‘s lending out 900€ =1000*0.9 Bank B’s lending out 810€ = 900*0.9 ......... ......... ......... ......... ......... ......... ∞ Total mone y suppl y 10,000€ ൌ ሺ1000 כ 0.9 nሻ nൌ0
Theoretical Background: Money Multiplier It can be see, 1000e,. turned"into 10000∈. The Money№utip|ier Let the reserve ratio be r Money multiplier m =I/R The Money multiplier equals the total money supply, that one unit of money will create
Theoretical Background: Money Multiplier It can be see 1000 It can be see, 1000 € „turned into “ 10000€. The Money Multiplier ◦ Let the Reserve ratio be R. ◦ Money Multiplier m = 1/R Th M lti li l th t t l Th e Money multiplier equals t h e total money supply, that one unit of money will create
Theoretical Background: Money Multiplie er R Obviously, manipulating R will change m, and so the money supply. 3食m↓ RR Changes in the money supply will affect price level. Reserve requirements are an important instrument of monetary control
Theoretical Background: Money Multiplier 1 m ൌ R Obviously, manipulating R will change m, and so the mone y pp y su l . R m R m Ch i h l ill ff Changes i n t h e money supply will affect price level. R R Reserve Requirements are an important instrument of monetary control
Theoretical Background: Central Bank Definition An institution designed to oversee the banking system and regulate the quantity of money in n the economy Means of monetary control: Reserve requirements Open-market Operations Discount rate
Theoretical Background: Central Bank Definition: An institution designed to oversee the banking system and regulate the quantity of money in the economy. Means of Monetar y Control: ◦ Reserve Requirements ◦ Open -market Operations ◦ Discount Rate
Chinas Central Bank: The Peoples Bank of china The people s bank of china is the bank that has the more financial assets in the world The people' s bank was established in 948 First located in Shijiazhuang hebei The central bank status is legally confirmed in 995
China’s Central Bank: The People’s Bank of China The People’s Bank of China is the Bank that has the more financial assets in the world Th P l ’ B k bli h d i 1948 Th e People’s Bank was establi s h ed i n1948 First located in Shi j g, iazhuang, Hebei The central bank status is legally confirmed in 1995
Chinas Central Bank: The Peoples Bank of china ● Duties To define and implement the monetary policy To limite or prevent from financial risks To ensure the financial stability
China’s Central Bank: The People’s Bank of China Duties ◦ To define and implement implement the monetary monetary policy ◦ To limite or prevent from financial risks ◦ To ensure the financial stability
