(1) Currency multiplier:
The central bank influences the denominator of the currency multiplier by adjusting Rd (statutory reserve ratio for checking deposits) and Rt (non-transaction deposits statutory reserve ratio). If the reserve ratio is raised and the money multiplier is lowered, part of the liquidity of commercial banks will be frozen and handed over to the central bank, so that they cannot participate in money creation and reduce the money supply; If the reserve ratio is reduced and the money multiplier is increased, commercial banks will get some liquidity for credit supply, thus increasing the money supply.
The central bank can position the formation of market interest rate by adjusting the rediscount rate, thus affecting the opportunity cost of liquidity of commercial banks through the change of market interest rate, and ultimately affecting the excess reserve ratio of commercial banks. The specific mechanism is: when the rediscount rate is raised, the market interest rate is raised and the opportunity cost of bank funds is increased under this guidance, thus reducing the excess reserve ratio, lowering the denominator of the money multiplier, raising the money multiplier and increasing the money supply.
(2) For the base currency:?
The central bank affects the increase or decrease of the base currency through the amount of rediscount and refinancing. When the central bank injects liquidity into commercial banks and increases the discount window, it directly increases the base money, making this part of new high-energy money form money supply through the money creation mechanism. On the contrary, it will recycle the base money and reduce the money supply.
The central bank uses the open market business to buy and sell government bonds in the bond market, conduct repurchase transactions in the repurchase market, issue special government bonds, and issue central bank bills. , thus affecting the increase or decrease of money supply.
Extended data
Monetary policy of the central bank:
The central bank is responsible for implementing the monetary policy chosen by the state. Whether it is a strong currency, gold standard currency, linked exchange rate system or monetary union, the most basic work of the central bank includes the establishment of a national monetary system. When a country has its own monetary system, it involves the standardization of money, which is basically a promissory note: a promissory note is a promise to convert bills into money in some cases. In the past, money could be exchanged for a fixed amount of precious metals. Now there are many strong currencies, so the guarantee money is no longer limited to the same amount of guarantee money in the same currency.
The central bank is called a bank because it has assets (foreign exchange, gold and other financial assets) and liabilities. The basic liabilities of the central bank are the currency in circulation and the liabilities guaranteed by the bank's own assets. Less commonly, the central bank in charge of a strong currency creates a new currency to repay debts, and there is theoretically no upper limit.
Most central banks will contact other countries' currencies directly (this method is adopted by the central banks of monetary union) or indirectly. In indirect cases, the central bank uses the foreign currency it holds to stabilize its own currency at a fixed exchange rate; The most notable countries and regions that use this mechanism are Hong Kong and Estonia.
In countries with strong currencies, people who control the currency regard monetary policy as a quick means to achieve the target interest rate or other purposes.
Baidu Encyclopedia-Money Supply Mechanism