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Frontiers of Economics in China

Front. Econ. China    2009, Vol. 4 Issue (3) : 361-383     DOI: 10.1007/s11459-009-0020-5
Research articles |
Reserve requirement, reserve requirement tax and money control in China: 1984–2007
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Abstract In recent years, the People’s Bank of China (PBC) has carried out monetary policy by means of reserve requirement frequently in an effort to hedge the excess liquidity in the banking system. But just like other government taxes, reserve requirement maybe have an optimal required reserve rate (RRR). When the RRR have been raised to the optimal level, the effect of reserve requirement policy in money control and liquidity sterilization should also be withered due to the loss of the “tax base”. Therefore, we establish a theoretical model and analysis framework and make the corresponding econometric test and empirical analysis. The main conclusions are as follows: The optimal RRR in China at present is about 23%. If the RRR is further raised above 23%, the monetary authority should adjust the deposit and loan interest rates, interest margins between deposits and loans and the deposit reserve requirement rate to expand the using scope of the reserve requirement policy.
Keywords reserve requirement tax      optimal reserve requirement rate      money control      monetary policy      
Issue Date: 05 September 2009
 Cite this article:   
. Reserve requirement, reserve requirement tax and money control in China: 1984–2007[J]. Front. Econ. China,2009, 4(3): 361-383.
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