Contents and operational principles of the three major monetary policies

Content: The deposit reserve policy means that the central bank sets the deposit reserve ratio for the deposits of commercial banks and other monetary institutions, and forces commercial banks and other monetary deposit institutions to pay the deposit reserve in accordance with the prescribed ratio. Thereby affecting the money supply.

Principle: Adjusting the statutory deposit reserve ratio can quickly change the deposit expansion multiple and money multiplier of commercial banks to adjust the money supply. But the effect of this tool is too violent to be used often.

2. rediscount policy.

Content: rediscount policy is a means for the central bank to influence the credit scale and market interest rate of commercial banks by raising or lowering the rediscount rate, so as to achieve the goal of monetary policy.

Principle: The provisions on the qualification conditions of rediscount can play a role in restraining or supporting, and can change the flow of funds.

3. Open market business.

Content: It refers to a monetary policy means that the central bank publicly buys and sells securities in the financial market to change the reserves of deposit-taking monetary institutions such as commercial banks, thus affecting the money supply and interest rates.

Principle: Buying and selling securities through open market business: → directly increasing or decreasing the base currency → adjusting the money supply → influencing the securities price → adjusting social credit.

Extended data:

Monetary policy tools: Monetary policy tools are various economic and administrative means for the central bank to regulate and control the base currency, bank reserves, money supply, interest rates, exchange rates and credit activities of financial institutions in order to achieve its policy objectives.

There are seven main measures:

First, control currency issuance.

Second, control and regulate government loans.

Third, we should promote open market business.

Fourth, change the deposit reserve ratio.

Fifth, adjust the rediscount rate.

Sixth, selective credit control.

Seventh, direct credit control.

References:

Baidu Encyclopedia-Monetary Policy