The Study On The Effectiveness Of Deposit Reserve Policy In China

With the development of economy, the effectiveness of deposit reserve policy hasgone through three period in China, from the means of financing of central bank(1984-1997) to general operation tool of monetary policy afterwards (1998-2003),tothe general structural operation tool of monetary policy and payment and settlementguarantee(since2004).Recent years, CPI runs high, bank credit remains rapid growthspeed, central bank frequently adjusts the deposit reserve ratio to tighten liquidity.From2007to2011, central bank made33adjustments for the deposit reserve ratio, andthe deposit reserve ratio constantly refresh the historical high record. Deposit reservepolicy has undoubtedly become the most popular monetary policy. With the changingeconomy situation, the adjustment of deposit reserve ratio is also changing, this articleattempts to analyze the impact on economy operation of deposit reserve ratioadjustment, explore its effectiveness, and methods or policy recommendations ofenhancing its effectiveness.The first section is prolegomenon, mainly explained the background andsignificance. CPI always ran high in2011, the lowest is4.1%, and highest is6.5%.Inflationary pressure was so big, central bank frequently adjusted deposit reserve ratioto21.5%, the highest in history, much higher than other countries. On the significanceof the topic, in the view of theoretical significance, exploring and enhancing theeffectiveness of deposit reserve policy have great influence on reinforcingmacroeconomic regulation and control, ensuring economy health. In the view ofpolitical significance, according to economy operation, select the appropriate monetarypolicy tools, flexibly and effectively use of the deposit reserve policy, ensure a healthyeconomic development. Literature report provides an overview of domestic andforeign scholars on the development of the reserve system, its effectiveness anddiscussion on its interest-bearing in recently years. The second section mainly introduce the meaning of deposit reserve policy,development and evolution. Gives an overview on the establishment of the reservesystem in the United States, Japan and China. In China, financial system has excessliquidity, minor fine-tune the deposit reserve ratio is not a "medicine", and will nothave a great impact on real economy.The third section first analyzes the policy objectives of China’s reserve system, thenanalyzes the reserve policy transmission mechanism from the perspective of the moneymultiplier, commercial banks, at last, selects economy data in the period of2004-2011,with the help of econometric software Eviews, to analyze the effectiveness of depositreserve policy. Explore the influence on the growth rate of M2, bank credit and CPI.Huge trade surplus and inflows of international hot money makes the banking systempossess excess liquidity, weaken the effectiveness to some extent. However, depositreserve system has played an important role in inhibiting excessive growth of creditand broad money growth.The forth section first analyzes the inherent defects from the view of provision,deposit management and differentiated reserve system, recommends that the provisionin accordance with the average balance of deposits. Then analyzes the problemsencountered in the implementation process, inevitable time lag of monetary policies,excess liquidity in the banking system, and interest rates of non-market have reducedthe effects of deposit reserve policy. Finally put forward proposals of enhancing theeffectiveness of the policy from three aspects, lower the deposit reserve ratio, use inconjunction with other monetary policy, flexibly combine with fiscal policy.