Bank Lending Behavior and the RRR
If we compare the financial system to a machine, the central bank's monetary base can be seen as production input and the broader money supply as the output after processing. What are the returns on a 1 yuan input? It is determined by the structure of the machine, and most crucially, by the reserve requirement ratio.
Without accounting for cash leakages, the money multiplier is the reciprocal of the reserve requirement, for instance, if the RRR is 20 percent, the money multiplier is 5. There is no direct link between the money multiplier and the loan-deposit ratio, but as a part of the financial system, the loan-deposit ratio also has an impact on monetary expansion.
- Graphics: Migrant March Slows
- Will the capital's ban on smoking indoors that comes into effect on June 1 be effective?
- Views: Worth the Ride?
- The American Debate over Legal Accountability of Chinese Companies
- This is How it Really Sounds
- England's Yellow Peril
- A Search for Common Ground
- Vietnamese Brides
- Party's 'United Front' Meeting Said to Be Aimed at Earning Reform Support
- Cloud of Smoke: Capital's Smokers Burn 14 Cigarettes a Day
- Sign up to receive our free daily newsletter
- Solar Panel Maker Suffering HK Share Sell-Off 'Failed to Repay Loans'
- Why Xinjiang's Economy Is Sputtering
- Kevin Rudd: Answering the Peaceful Rise Question
- Phone Maker Transsion Catches the African Beat
- The Big VIE Question
- Rain on CCTV's Moscow Parade Coverage
- China Unleashes Bonds to Tackle Local Debt
- Gov't Announces Plan to Upgrade Factories over Next Decade
- Tencent Expands Net Bank Experiment to 50,000 Social Media Users
- Public Hospitals to Be Opened to Investors, State Council Says