Tightening monetary policy is a policy tool adopted by the central bank to achieve macroeconomic goals. This monetary policy is a policy of tightening money when the economy is overheated, the total demand is greater than the total supply, and the economy is experiencing inflation. The central bank will adopt a tight monetary policy aimed at raising interest rates by controlling the money supply, so as to reduce investment and compress demand. The decline of total demand will make the total supply and total demand tend to be balanced and reduce the inflation rate.
Benefits of loose monetary policy:
1. Under the loose monetary policy, the money supply in the market has increased, reducing the cost of capital use and increasing profits.
Increasing the money supply will increase people's money income and promote consumption.
3. Loose monetary policy is a monetary policy to promote economic development when the domestic economy is not prosperous enough.
Main measures to tighten monetary policy:
1, reduce currency issuance:
The effect of this measure is that the original amount of paper money will not increase. The central bank can grasp the source of funds as the basis for controlling the credit activities of commercial banks. The central bank can use the right to issue money to regulate the money supply.
2. Control and regulate government loans:
In order to prevent the government from abusing loans to fuel inflation, capitalist countries generally stipulate that short-term loans are limited and must be paid off when all taxes or debts are collected.
3. Implementation of open market business:
Through its open market business, the central bank plays a role in regulating the money supply, expanding or tightening bank credit, and then regulating the economy.
The common measure is to issue government bonds in the open market. The more people buy government bonds, the less money is circulating in the market.
4, improve the deposit reserve ratio:
Raise the deposit reserve ratio. The central bank controls the loans of commercial banks by adjusting the reserve ratio and affects their credit activities.
Deposit reserve refers to the deposit prepared by financial institutions in the central bank to ensure the needs of customers to withdraw deposits and settle funds. The ratio of the deposit reserve required by the central bank to its total deposit is the deposit reserve ratio. It is a fund prepared to limit the credit expansion of financial institutions, ensure customers to withdraw deposits and meet the needs of fund settlement.
5. Increase the rediscount rate:
The rediscount rate is a discount behavior between commercial banks and the central bank. Adjusting the rediscount rate can control and adjust the credit scale and affect the money supply.
6. Selective credit control:
It is a special management for specific objects, including: securities trading credit management, consumer credit management and real estate credit control.
7. Direct credit control:
It is a measure taken by the central bank to directly intervene and control the credit activities of commercial banks in order to control and guide their credit activities.