A Study On The Application And Effect Of Deposit Reserve Policy In China's Monetary Policy

As one of the most ancient monetary policy, deposit reserves policy was used to ensure that banks had liquidity originally. And today has became an effective instrument of monetary policy for the central bank to control the size and volume of money supply. The central bank adjust the deposit reserve ratio of commercial banks will change the structure of reserve. Through the multiplier effect of monetary credit and money supply to achieve the goal of macroeconomic regulation and control. In recent years, the central bank adopts a small increase and large frequency deposit reserve policy which aroused widespread controversy in theoretical circles. Western developed countries have to give up the deposit reserve policy which as "medicine" in monetary policy, while our country has strengthen its use. Accordingly, the research on our country's the application results of required reserve at the present stage will help us understand the central bank's choice on monetary policy and practical problem at adjustment period.This paper bases on the background of the application effect of deposit reserve policy in our country in different periods, discusses under the different required reserves system, the deposit reserve policy's effect and role on the banking, real estate, the bond market and stock markets. And then on this basic analysises the factors which impact current the effect of required reserves. And uses much data to explain questions. Focus on combining theory and practice, first of all outlines the deposit reserve policy-relevant theory, secondly reviews the development of international reserve system, and then concentrate on the deposit reserve policy's impact on the various fields in China's macro-economic, and finally on the basis of illuminate the problems of reserve policy in practical application, gives specific analysis and recommendations to enhance the effects of policies.This article is divided into five sections:The first part introduce relevant theoretical results of deposit reserve policy. To foreign scholars the deposit reserve policy is more controversial, the majority of scholars believe that a micro-adjust of the deposit reserve ratio will give the volume of money supply as well as macro-economic a large shock, and is not conducive to financial stability, so the majority of this countries use this monetary policy instrument with caution. Scholars of our country from the practical situation carried out a series of theoretical exploration, the majority of scholars believe that the deposit reserve policy accord with the macro-economic changes in China. The central bank's deposit reserve rate of "micro-adjust, high-frequency" operation enables the control of macro-economic. Especially in recent years, under the condition of the excess domestic liquidity and investment overheating, its role is particularly prominent.The second part introduces the meaning of deposit reserve policy, the specific content of the instrument system, mechanism, as well as comparison on deposit reserve policy and other monetary policies. Although the deposit reserve system is not a new instrument of monetary policy, but with time there is a rich connotations. Today, the world economic integration and financial innovation ever-changing, the central bank has to respond to the changing internal and external economic situation, draw and carry into combined policies positively. In these policies, reserve deposits policy has a role which other monetary policy can't contain and it helps the practice of other monetary policy and fiscal policy, achieve macroeconomic regulation and control. From December 11, 2006, China fully opened up the banking sector, faced the new period of development of commercial banks, deposit reserve system is also constantly improving.Part III first reviews the development of deposit reserve system and summarizes functions and features of reserve policy from the developed marketing economical countries and emerging marketing economical countries. The main features of deposit reserve policy are: Firstly, the mobility management functions; Secondly, buffer functions; Thirdly, monetary control; Forth, seigniorage revenue. At present, in most developed marketing economical countries, the deposit reserve policy has only a buffer and income taxes function, while in emerging marketing economical countries, the reserve requirements are usually have the following four characteristics: First, can stabilize the overnight interest rates, play a buffer role; Secondly, the central bank requires reserve for mobility management as a main tool and offset the spontaneous factors'liquidity change; Thirdly, changes in monetary policy as an instrument of status; Fourth, in the case of a very low interest rates or even interest-free, the reserve was required become the proceeds of the Central Bank in fact ,as a source of seigniorage. Finally introduced since our country'deposit reserve system set up, the change in various stages of financial reform policies in the deposit reserve's use and selection. At the pre-reform financial system (1984 ~ 1994), the deposit reserve system and policy are instruments of central bank financing; the financial system reform in the early period (1994 ~ 1998) deposit reserve system and policy change to monetary policy instrument; With the deepen of financial system, the reform of the deposit reserve system and policy (1998 ~ 2008) put the deposit reserve rate to determine their capital adequacy ratio, asset quality indicators, in order to achieve the functions of monetary policy and financial supervision functions of the organic combination. In addition face to our country's current situation of excess liquidity, deposit reserve policy develops as a tool for hedging liquidity.Fourth mainly explores reserve's effects of macroeconomic policy, give a specific analysis from four perspectives: the impact on the banking industry, the impact on the real estate industry, the impact on the bond market, as well as the impact on the stock market. First of all, the adjustion of deposit reserve ratio has an obvious impact on banking sector, the required reserve has a direct impact on the number of credit funds of banks, thereby affects the bank's funds management and profits. Secondly, the deposit reserve ratio will adjust the volatility of asset prices, to strong demand for real estate funds, the lower the deposit reserve ratio will rise the real estate's price and in contrary, decreased. Also adjust the deposit reserve ratio will optimize the integrate the real estate market allocation of funds. For the bond market, the deposit reserve policy as a bad or good news, the effect will be directly reflected in the trend of prices on debt. For the stock market, the deposit reserve ratio mainly affects the funds into the stock market, which play a certain extent on those capital-intensive industries section.Part V depth analysises the current reserve policy's problem in operation as well as the factors leading to inefficient conduct and gives recommendations targeted to improve the deposit reserve the effectiveness of policies. Specific approach as follows: 1, reforming our system of deposit reserve interest; 2, ensure coordination of the policies and systems; 3, further promote the process of mercerization of interest rates; 4, strengthen management of foreign capital inflow.