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.
- The Waistland
- Cyanide Found in Dog Meat Sold to Restaurants, Zhejiang Court Hears
- In Paris, It's All about Growth
- Gov't Policies Actually Encourage Risky Investing Abroad
- Weeping Ceiling
- Insurance Firms Stop Online Sales, as Regulator Takes Long Look
- The Upright Magistrates
- Film: Tell Me a Beautiful World
- Exhibition: After Time
- Graphics: Going Mobile
- Sign up to receive our free daily newsletter
- Zhou Family Legacy: Thick Blood, Fat Profits
- Zhou Yongkang's Early Years
- Closer Look: Anti-Corruption Czar Makes Noteworthy Appearance at CPPCC Meeting
- Zhou Yongkang Used Start in Oil Industry to Rise to Public Security Czar
- Chinese Tycoons, Stars Take up Ice Bucket Challenge for ALS
- Deng Xiaoping Gave Double Boost to Reform Efforts, Economist Says
- Retired NDRC Pricing Official 'Detained at Beijing Airport'
- Haier's New Look: 'Micro-Enterprise' Platform
- More Officials in Scandal-Hit Shanxi Come under CDIC Scrutiny
- No Free Rides in Iraq