| It has been a century since the legal reserve requirement system come into practice in1913.For most western countries the importance of the legal reserve requirement system has changed dramatically from a main policy instrument to an auxiliary one. In some countries it has even been abolished.Since it was establishment in China in1984, the legal reserve requirement system has been a commonly-used policy tool used in macro control and shows many positive and active effects. In april the252004,an innovation about the system-discriminatory reserve requirement system-come into being which put a damper on the then rising risks in our economy.Since2003, in order to expand the size, some financial institutions have issued large amount of loan causing severe consequences. The stock of social loan is much higher than the average level of the former years. The increment of social loan flowed into risky and speculative industry such as real estate which increases the capital price. After issuing the loan, the capital adequacy ratio and bad loan ratio of some commercial banks have reached an alarming level. Goods prices are rising to a very high level, in some cities even much higher than the other cities. The expectation of RMB appreciation caused an abnormal increase in foreign exchange reserve large amount of foreign currency flowing in.Based on this context and need for macro control, the Chinese central bank enforced the discriminatory reserve requirement system april25in2004.Undoubtedly, This measure was an innovation for the central bank of china and had positive effects in Chinese economy. However, this measure also had many side effects.For the positive part, this discriminatory legal reserve requirement system has exerted many good effects on our financial system. Firstly, this system refrain financial institutions from blind loan expansion, as a result, keeping the goods price at a reasonable level. Secondly, it imposes an incentive and constraint effect on financial institutions, incentive for those whose loan increase at a steady rate, bad loan ratio under good control, constraint for those who are not. Lastly, the discriminatory legal reserve system can make flexible adjustment to the economic structure without increasing regulation and control cost.Meanwhile, for the negative effect, there are three aspects. Firstly, the enforcement of this system has not lowered down the regional disparity of economic development. Secondly, it has not changed the distinction of industry development. Lastly, with the development of our economy, the rigid discriminatory ratio can not meet the needs of present economic situation.This paper provides in-depth analysis in three parts targeting these defects mentioned above. In the first part, my main task is to solve regional disparity problem. Firstly, this paper summarizes the present situation about the regional economic development disparity in three aspects:the distribution of natural resources, financing channel and cost. Secondly, in order to study negative effect of the present discriminatory legal reserve requirement system imposed on our regional economic development. This paper has done a great deal in the analysis and argument both theoretically and empirically. There are three levels in this argument. In the first level, this paper shows the dependence of economic development in different region on the social loan is different. And then in the second level, this paper has proved theoretically and empirically that the adjustment of the legal reserve ratio can pose tremendous effect on the total amount of loan issued by financial institutions. Lastly, in the third level, by the transitivity of logic relationship and empirical model, this paper come to a conclusion that the adjustment of the legal reserve ratio can place different effect on different regions in economic development. In the second part, we solve the industry-related problem. In the first place, as the argument of disparity problem, these papers give us a brief view about the long existing disparity in industry development. Secondly, by comparing the increasing speed of loan before and after the enforcement of the discriminatory legal reserve requirement system, this paper arrived at a conclusion that the present system provides inadequate support to the fundamental industries but far more support to the high risk industries. At last, in the third place, we do not discuss much for the reason that this part had been studied a lot in the past.After realizing the defects of this system, we need to come up with some proposals about how to improve it. Before this, I made a deep study about other country’s discriminatory legal reserve requirement system hoping to get some experiences and some lessons to learn. To be exact, this paper discussed three aspects:the historical background of this system, the international development, and the innovation about it. The main purpose of this part is to improve our country’s monetary policy by learning other country’s experiences.Lastly, based on the previous theoretic statement and empirical analysis, this paper puts forward three policy proposals. Theoretically, these three proposals improve the efficiency of the present system. Also, with the special background that the reserve requirement is paid by the head office in china, this paper definitely explains how this policy carries out in practice.This paper did not seek the "big and comprehensive" research perspective, but an in-depth argument and analysis. In relevant literature, some people propose that the discriminatory legal reserve requirement system should be based on regional difference. However, these papers’arguments are not sufficient and without exploring at length the authenticity and the operationality. This paper just overcomes these defects in the argument.This paper consists of six chapters. Chapter1is the introduction part, containing the research purpose and method. After reading this chapter, readers can have an at least overall understanding. Chapter2is the literature review. In this part, various research achievements about this problem is studied carefully and by learning the research method from other papers, this paper’s logicality and integrity can be improved and strengthened. The title of chapter3is the generation and development of discriminatory legal requirement reserve system in china. This part falls into three sections. In the first section, I will carefully analyze the context and background under which the discriminatory legal reserve system came into being. From this part, readers can indirectly understand the reason why the Chinese central bank enforces the discriminatory legal reserve requirement system. In the second section, this paper points out the essential reason. And in the last section, it gives a brief explanation about the development direction of the system. Chapter4, the core chapter of this paper, mainly discusses the problem and reasons since the enforcement of the discriminatory legal reserve system. The contents can be divided into three categories of important problems and their reasons. The argument not only consists of logic theoretic statement but empirical test. Chapter 5is statement about developed countries’ experiences. Compared with them, our country’s reserve system is underdeveloped. So we could improve our country’s policy by learning their development experiences. Chapter6is the conclusion part. In this last part, the three main problems discussed in part4are carefully analyzed and three policy suggestions have been proposed. |
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