The Effect Of Adjusting Reserve Requirement Rate In China

Reserve requirement system means that central banks oblige depository institutions to hold minimum reserves against their liabilities. This system originated in the United Kingdom is widely used in Western countries after the United States legislated it, its initial purpose is to offer liquidity and ensure paying ability, and it is later used as a monetary policy. But the change of the reserve requirement rate has a multiplier effect, a lot of countries abandon this system in the 80s, either eliminate or set the RRR to zero. China establishes the reserve requirement system in 1984, and relied more on this tool to withdraw domestic liquidity surpluses.This thesis contains six parts. The first part is the introduction; additionally the adjustment of the reserve requirement policy in China was introduced in details, which can be divided into two stages, from 2006 to the June of 2011 and from the June of 2011 to 2015. Next, the impacts of the reserve requirement policy adjustments on the CPI and GDP are analyzed using empirical analysis. Following this, we focused on the reason way the effect of reserve requirement adjusting is weakened, Then this thesis offers advices for improve the reserve requirement system, finally is the conclusion.Increasing the reserve requirement rate has a lag effect on the CPI, decreasing the reserve requirement rate has a positive effect on CPI. Increasing the reserve requirement rate could largely restrain the economy and GDP will be reduced, however, decreasing the reserve requirement rate could not largely stimulate the economy. The future development of reserve requirement policy in China is to improve the differential reserve requirement policy, enhance its guiding role and optimize the structure of commercial bank credit.