What are the main monetary policy tools and their respective characteristics?

Monetary policy, that is, financial policy, refers to various principles, policies and measures adopted by the central bank to control and regulate the money supply and credit quantity in order to achieve its specific economic goals.

Monetary policy tools mainly include deposit reserve system, rediscount policy and open market business:

1, deposit reserve system

The deposit reserve system refers to the system in which the central bank controls the credit scale of commercial banks and indirectly controls the social money supply by stipulating or adjusting the deposit reserve ratio deposited with the central bank within the scope of power granted by law. Since April 1998, the People's Bank of China has greatly lowered the deposit reserve and reserve ratio of commercial banks.

2. rediscount policy

Rediscount policy is a financial policy that the central bank intervenes and influences the market interest rate and money market supply and demand by setting or adjusting the rediscount rate, and controls the investment of funds by stipulating the qualification of bill discount. When the market money is loose, the central bank raises the rediscount rate. With the increase of rediscount rate, the discount cost increases and the discount amount decreases. At the same time, the market interest rate will increase accordingly, and the social demand for money will be suppressed, thus reducing the market money supply. On the contrary, lowering the rediscount rate will increase the money supply.

3. Open market business

Adjusting the economy by buying and selling treasury bonds was an accidental discovery of the Federal Reserve system in the United States in the 1920s. At that time, the rediscount effect was weakened by the crisis, and the Federal Reserve Bank of the United States began to reduce interest rates and expand credit by purchasing government bonds, so a new monetary policy tool came into being.

Open market business is the activity of the central bank to buy and sell securities in the market in order to withdraw money or put money in and adjust the money supply.

Tips: The above information is for reference only.

Reply time: 2021-11-22. Please refer to the latest business changes announced by Ping An Bank in official website.