The Analysis Of Development Of Deposit Reserves Theory And Its Monetary Multiplier Effect In China

Deposit reserves, has the original function of keeping liquidity in banking。In the modern sense, the Deposit Reserve is depositors ’bank’s required balance of deposits in central bank, which is used 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 required balance is known as the required Deposit Reserve Ratio ("DRR").By raising or declining "DRR", which serves as a Policy instrument to control credit and money supply, the central bank aggrandizes or lessens the obligatory deposit from financial companies. In this way, the central bank leading to the change of money multiplier, and then achieve the purpose of enlarging or reduce credit and money supply. In recent years, some western industrial countries were allying the utilization of the DRR system. The substitute are other instruments, e.g. deposit interest rate or some else, to regulate financial market. The role of DRR as a monetary policy instrument is fading continuously worldwide.However, China’s economic development is under the specific conditions, and in a complex stage. Further research of the issue of interaction and the Policy resulting effects of DRR, are necessary, to definitely facilitate the perception of the realistic problems in the country. Therefore, we can answer the following question: Does it work? How could it work better?...