Three Means of Monetary Policy

Monetary policy means refers to the policy means adopted by the central bank to adjust the intermediate indicators and then achieve the monetary policy objectives. The three traditional policy tools adopted by western central banks for many years, namely, statutory reserve ratio, rediscount policy and open market business, are sometimes called "three magic weapons", which are mainly used to regulate the total amount of money.

1, statutory deposit reserve ratio policy (ReserveRequirementratio)

The real effect of the statutory deposit reserve ratio policy is that it can expand the credit of deposit money banks and adjust the money multiplier. If the central bank adopts a tightening policy and raises the statutory deposit reserve ratio, it will limit the credit expansion ability of deposit money banks, reduce the money multiplier, and eventually shrink the money supply and credit quantity, and vice versa.

2. rediscount policy.

Deposit money banks ask the central bank for discounts on commercial bills discounted by customers in order to obtain credit support from the central bank. Adjust the rediscount rate according to policy needs. If the central bank raises the rediscount rate, the cost of borrowing money from deposit money banks will rise, and the base money will shrink, and vice versa.

3.openmarketoperation。

The central bank conducts securities trading activities in the open market with the purpose of regulating the base currency, thus affecting the money supply and market interest rate. Open market business is a flexible financial control tool.