China's Central Bank Statutory Deposit Reserve Policy

The macroeconomic development and macroeconomic policy goals of a state always have decisive impact on the choice and application of monetary policy tools. In accord with Law of the People's Republic of China on the People's Bank of China (PBC) of 1995, as the central bank of China P.R., PBC announced that the national monetary policy goal is "to maintain the stability of the currency value in order to promote the economic development". It is obvious to secure the conclusion that an order should be endowed with "stability" and "increase". Recently the monetary policy trend transferred from "robust" to "moderately tight", and has come up to "tight". In 2007, PBC increased the interest rate for six times, raised the required deposit reserve ratio for nine times, issued Introduction Note for seven times, resumed the three-year note and special deposit, and expanded the violation range of RMB/USD, and put "window operation" into practice for several times, which are unprecedented in history. However, the reality of economic operation was the expected goals were frequently missed. Take the year of 2007 as an instance. In this year the increase of M2 had surpassed the goal of 16% which had been set in the beginning of the year for 2% up to the end of November, while the amplitude of Ml stayed at the high rate of 16% for the whole time period. The expected size of new loan for the year, which was supposed to be approximately controlled at three trillion yuan, exceeded the number three months in advance. The national macro-control efforts were exceptionally noticeable.The tool of Required Deposit Ratio, which was used for nine times by PBC in 2007, gained broad attention from relevant industries and others. As one of the common monetary policies, Required Deposit Ratio is among the so-called "The Three Leading Cards", while the other two are Rate of Rediscount and Open Market Operations. It means the central bank accommodates the credit creation and money supply of commercial banks by regulating or adjusting the deposit ratio at which commercial banks pay to the central bank. It began in China from 1984, and went through three phases. Required Deposit Ratio has been made use of to control the national macro-economy for twenty times, and has been gradually restored to its origin of adjusting money supply from a governmental financing measure. It has beenutilized more frequently to meet the demand of china's economic policy goals. Comparing the frequent use of it and its functions, there are both recognition and doubt, and the discussions on its application and effects are keen.This paper begins with the utilization of Required Deposit Ratio in China's macro-control, which is in the clue of its chronological development, and introduces relevant theories, such as its concept, position and effects. The paper also analyses its functions in the macro-control of China from its origin, development and application, and tries to figure out the factors affecting its functions, and further discusses about how to utilize Required Deposit Ratio in the face of new demands in the macro-control of our country.