| The Required Reserve is depositors'bank's minimum balance of deposits in central bank to ensure that the bank do no run out of cash on hand to meet the demand for withdrawals and settlement. The percentage of the minimum balance is known as the Required Reserve Ratio ("RRR"). Central banks could adopt RRR to readjust the credit capacity of commercial banks and as a result, influence the currency supply. In practice, few countries treat RRR as a main policy vehicle. However, People's Bank of China (the Chinese central bank) has turned to continuous readjustments of RRR to curb the excessive liquidity. Does it work? This thesis is trying to answer the question by a quantitative analysis of the case in China. |
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