MLF, also known as medium-term lending facility, is a monetary policy tool used by the central bank to provide medium-term base money. MLF is aimed at commercial banks and policy banks that meet the requirements of macro-prudential management. MLF is issued in the form of collateral ownership, providing high-quality bonds such as government bonds, central bank bills, policy financial bonds and high-grade credit bonds as qualified collateral.

While providing liquidity, MLFS serves as a medium-term policy interest rate, guiding commercial banks to reduce loan interest rates and social financing costs, and supporting real economic growth. Generally speaking, the medium-term lending facilities have played a role in supplementing the liquidity gap and maintaining a neutral and moderate level of liquidity under the situation that the base money is gradually slowed down through foreign exchange.

What does the base currency mean?

The base currency is also called monetary base, strong currency and initial currency, because it can double or shrink the total money supply, and it is also called high-energy currency. It refers to the sum of the cash circulating outside the banking system held by the public and the deposit reserve (including statutory deposit reserve and excess reserve) held by the commercial banking system. It is a debt certificate issued by the central bank, which is manifested in the deposit reserve of commercial banks and the currency held by the public. In the IMF report, the base currency is called the reserve currency, which consists of the currency issued by the central bank and the bank debt guaranteed by the central bank.

The base currency is the basis for the entire commercial banking system to create deposit currency, and it is the source of the multiple expansion of deposits in the entire commercial banking system.