Why does China frequently adjust the statutory deposit reserve ratio?

Depending on China's national conditions, China's market economy system is underdeveloped and needs to be improved in many places. In order to effectively solve economic problems as soon as possible and achieve the established policy objectives. Adjusting the statutory deposit reserve ratio is often regarded as a "fierce medicine" because of its great strength.

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. The size of the multiplier is inversely proportional to the statutory deposit reserve ratio. The statutory deposit reserve ratio has a great influence on the currency multiplier, so the central bank has begun to reduce the use of this monetary policy.

Extended data:

In addition to the statutory deposit reserve, the central bank's monetary policy also includes rediscount policy and open market business.

Rediscount policy is mainly aimed at commercial banks, and the central bank realizes the rediscount policy by adjusting the rediscount rate of commercial banks, thus adjusting the money supply in the money market. Compared with the statutory deposit reserve ratio tool, the rediscount tool is relatively more flexible and less powerful. But the initiative is in the deposit bank, not the central bank.

Open market business refers to the central bank's securities trading activities in the open market to achieve 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 and the preferred monetary policy of the central bank.

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