Central mom - cut rates and interest rates

-the People's Bank of China-

Central bank, also known as the "central mom", full name of the People's Bank of China, the State Council, a component department. Under the leadership of the State Council, it formulates and implements monetary policy, prevents and resolves financial risks, and maintains financial stability.

"Central mom" is one of the State Council's 25 directly under the ministries and commissions members, always constantly worry about our country's financial environment. She acts as the agent of the state treasury, issues treasury bonds on behalf of the state, sends money to provinces, represents the country in international financial activities and actively promotes the development of international cooperation in the field of finance, and provides the central government with financial intelligence and decision-making advice ......

The central bank is the lender of last resort for commercial banks and other financial institutions, and she is the mother of all banks and institutions. .

Specifically:Concentrate the deposits of commercial banks and institutions and put all the money they don't normally use in the central mom's pocket for safekeeping. But when these commercial banks and financial institutions can't get the money to go out of business, the central bank will give the money to keep the "unlucky child" in business. Of course, it also has to witness the borrowing and lending situation among the siblings of the banks. In normal times, it also has to regulate the amount of foreign exchange.

1. The lowering of the reserve requirement ratio (RRR). This is the "central mother" in order to prevent those "bear children" (commercial banks) blindly lending, resulting in their pockets do not have enough money to cash depositors' deposits. Therefore, the central bank asked the banks to submit deposits, as a reserve, just in case. And the ratio of those reserve deposits to total bank deposits is the reserve ratio.

As an example: the reserve ratio before the cut was 10%, then every 10 million deposits collected by the bank, we have to give the "central bank" to hand over 1 million as a deposit reserve, the remaining 9 million can be taken to lending. Later, the deposit reserve ratio fell by 1 percentage point, the reserve ratio is 9%, then the bank only need to hand over 900,000 to the "central mom" on it.

2. Reducing interest rates means lowering the bank's lending rate, which attracts more people to go to the bank for a loan. When banks cut interest rates, the funds deposited in the bank's earnings will be reduced, so after the interest rate cuts, the funds will flow out of the bank, deposits into investment or consumption, the result is to increase the liquidity of funds.