The system of monetary policy tools can be divided into: main general tools and supplementary tools.

1. Main general tools

Advantages:

The real effect of the statutory deposit reserve ratio policy is reflected in its credit expansion of deposit money banks Capacity,modulation of money multipliers.

Disadvantages:

1. When the central bank adjusts the statutory deposit reserve ratio, the deposit currency banks can change their excess deposit reserves with the central bank, offsetting the statutory deposit reserve ratio in the opposite direction. The role of the statutory deposit reserve ratio policy;

2. The statutory deposit reserve ratio has a great impact on the money multiplier and is very powerful, and is often regarded as a "strong medicine";

3. The impact of adjusting the statutory deposit reserve ratio on the money supply and credit volume must be realized through the rolling deposits and loans of deposit money banks, step by step, and the effect is slow and the time lag is long. Therefore, the statutory deposit reserve policy is often used as an automatic stabilizing mechanism for monetary policy, rather than as a regular policy tool for timely adjustment.

2. Supplementary tools

Advantages: The advantage of indirect credit guidance is that it is more flexible, but to be effective, the central bank must have a higher status in the financial system and Have sufficient legal rights and means to control credit.

Disadvantages: Window guidance refers to the central bank's suggestions on credit increases and decreases for deposit money banks based on new situations and problems that arise in economic operations such as industrial conditions, price trends, and financial market trends.

If the deposit currency bank does not accept it, the central bank will take necessary measures, such as reducing its loan limit, or even taking sanctions such as stopping the provision of credit. Although window guidance is not legally binding, its influence is often relatively large.

Extended information:

Overview of China

New foreign exchange reserves are difficult to support the rapid expansion of the base currency.

The sharp decline in new foreign exchange accounts in 2012 is an important reason for the tight domestic capital situation. Looking forward to 2013, my country's capital flows are more likely to improve thanks to overseas loose monetary policies. However, due to the mismatch between foreign currency assets and liabilities of the private sector, the private sector will still increase its holdings of foreign currency assets in the medium and long term. Therefore, new foreign exchange outstanding funds will improve to a certain extent in 2013, but it will be difficult to support the high growth of base money.

Secondly, the central bank is not willing to loosen money, and the money multiplier is difficult to significantly increase. In the "Third Quarter Monetary Policy Implementation Report", the central bank believed that "the Chinese economy is still in the structural adjustment stage as a whole, and this process will further release the potential for growth." In other words, monetary policy may take promoting structural adjustment as an important goal, rather than seeking to counter-cyclically promote a short-term rapid economic rebound. However, it does not rule out adjusting the reserve ratio to hedge against changes in foreign exchange holdings.

Baidu Encyclopedia - Monetary Policy