Reforms in China’s Monetary Policy Reforms in China’s Monetary
(c) How Banks Obtain the Monetary Base
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- (d) How Banks Operate—Static Analysis
| (c) How Banks Obtain the Monetary Base
Banks must first have the monetary base before being able to conduct busi- ness. In short, banks’ business is to make loans and obtain the monetary base. For banks as a whole, in order to obtain the monetary base, they can only get loans from the central bank or exchange assets with the central bank. The central bank is the creator of the monetary base, and the public and banks are holders of the monetary base. Therefore for the banking sector as a whole, except at the initial stage, it has to absorb the cash previously withdrawn by the public in the form of deposits, or borrow from the central bank and sell financial assets (such as foreign exchange, treasury bonds) to the central bank to obtain the monetary base. There is no other ways around. With regard to individual banks, in addition to the two methods above, they can also obtain the monetary base from other banks through interbank lending or transfer of clients’ deposit. After obtaining the monetary base, banks can expand their assets through making loans or buying financial assets from clients. In the meantime, deposit money is created. Cash withdrawal or deposits transfer by the nonbank public will reduce the monetary base held by individual banks. As for deposits that are not used, banks are required to hold reserves that can meet the required rate. (d) How Banks Operate—Static Analysis Suppose the maximum lending amount of a bank is L ; the monetary base held by the bank is B ; the payment/deposits ratio of clients is k ; and the required reserve ratio is e . Then B L e k e = × + × − ( ) × L 1 , and we can get L B e k e k = + − × ( ) / . Therefore in the credit money system, the maxi- mum lending amount of an individual bank is determined by the amount of the monetary base held by the bank, clients’ payment/deposits ratio, and the required reserve ratio instead of the amount of “deposits.” Even if such “deposits” refer to the deposits transferred from the public or from other banks, which may increase the monetary base, this reasoning is still not cor- rect because there are two other factors at work. Monetary Theory ● 31 It is evident from the above formula that if the payment/deposits ratio is 1, then a bank’s maximum lending amount is equal to the monetary base held by the bank. But in reality, K must be less than 1 so that the monetary base can support a larger amount of loans and the corresponding money, which is the idea of money expansion. tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
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