What is the effect of the increase in the reserve requirement ratio?

Financial institutions must deposit part of the deposit in the ** bank, which is called the deposit reserve; The ratio of reserve requirement to total deposits of financial institutions is called the reserve requirement ratio. For example, if the reserve requirement ratio is 7, it means that for every 1 million yuan of deposits absorbed by financial institutions, they have to deposit 70,000 yuan of deposit reserves with the central bank, and the funds used to issue loans are 930,000 yuan. If the reserve requirement ratio is raised to 10,000 yuan, then the loanable funds of financial institutions will be reduced to 10,000 yuan.

Under the deposit reserve system, financial institutions cannot use all the deposits they absorb to issue loans, and must retain a certain amount of funds, i.e., deposit reserves, for the needs of customers to withdraw money, so the deposit reserve system is conducive to ensuring the normal payment of financial institutions to customers. With the development of the financial system, the reserve requirement has gradually evolved into an important monetary policy tool. When the bank lowers the reserve requirement ratio, the funds available for loans by financial institutions increase, and the total amount of loans and money in the society also increases accordingly; On the contrary, the total amount of loans and the amount of money ** in the society will decrease accordingly.

The central bank's decision to raise the reserve requirement ratio is a macroeconomic regulation of monetary policy, aimed at preventing excessive growth of money and credit. Since the beginning of this year, China's economy has grown rapidly, but the conspicuous contradictions in economic operation have also become more prominent, and the momentum of excessively rapid investment growth has not decreased. One of the main reasons for the excessively rapid growth of investment is the excessively rapid growth of money and credit.

Raising the reserve requirement ratio can correspondingly slow down the growth of money and credit and maintain the sustained, rapid, coordinated, and healthy development of the national economy.

The immediate effect is to tighten money and reduce the risk level of banks.

The so-called reserve requirement ratio is the ratio of the amount of money that banks put in banks to reserve for withdrawals to the total amount of deposits in banks. The greater this percentage, the less risk the bank has, and the less money it will borrow.

The main purpose of raising the reserve requirement ratio is to tighten money, reduce the amount of money in circulation, prevent economic overheating, and reduce inflation.

It is a monetary tightening policy, and in order to prevent the economy from overheating, it has the same effect as raising interest rates to raise interest rates.

The statutory reserve requirement ratio, which is one of the central bank's monetary policy tools, has the disadvantage of being a large shock to the economy and inelastic. The PBOC's adjustment of the statutory reserve requirement ratio instead of the interest rate as speculated is mainly to address the current situation of excess liquidity of commercial banks, and the adjustment of interest rates tends to have an impact on the economy as a whole.

If you want to know more about this question, please read my answer carefully.

To understand this question, we must first understand what a reserve requirement is.

Let's use layman's terms, what does a bank rely on to make money? The most basic means is to absorb deposits and then issue loans to those who need them. Charge a higher interest rate to those who take out loans, and lower interest rates to those who make deposits. Banks make money on this interest rate differential.

So, we put money in the bank, and the bank will definitely not save all this money, but find people who need it and lend it to them so that we can charge them interest.

But the bank can't give out all the money as a loan, because it also has to deal with the withdrawal needs of depositors, and if all the deposits collected are released as loans, the bank will not be able to withdraw money from customers. So the bank can issue a loan, but at least keep a part of the funds to cope with the customer's withdrawal request. This part of the funds retained is called the reserve reserve.

Therefore, the People's Bank of China, as the manager of ordinary commercial banks, will stipulate a deposit reserve ratio for all commercial banks, such as 10 percent, which means that at least 10 percent of the deposits absorbed by each bank should be retained, or that the maximum amount of loans granted shall not exceed 90 percent of the total funds.

A higher reserve requirement ratio would mean that banks would have to keep more money and be allowed to lend less. To put it simply, the amount of loans issued by banks has been compressed.

Most of the individuals or enterprises who take out loans are used for investment, and the suppression of loans can also be understood as the suppression of investment. Because China's economy as a whole is showing a trend of overheating and overinvestment, the central bank announced an increase in the reserve ratio, that is, to curb the overheated economy, this kind of policy is called tight monetary policy.

Raising the reserve requirement ratio is an increase in the ratio of bank deposits to the chain of difficulties, and it is a macroeconomic control means for banks to shrink the scale of credit, curb inflation, and control economic overheating. Reserve requirement refers to the deposit shed that financial institutions reserve in ** banks to ensure that customers withdraw deposits and clear funds. **The ratio of the reserve requirement required by the bank to the total deposit is the reserve requirement ratio.

The meaning and application of the reserve ratio refers to the deposits prepared by financial institutions in ** bank to ensure the needs of customers to withdraw deposits and clear funds, and the proportion of deposit reserves required by ** banks to their total deposits is the deposit reserve ratio.

The real effect of the reserve requirement ratio policy is reflected in its ability to expand the credit of commercial banks and adjust the money multiplier. Because there is a multiplier relationship between the credit expansion ability of commercial banks and the amount of base money put by the bank, the size of the multiplier is inversely proportional to the reserve requirement ratio. Therefore, if the first bank adopts a tightening policy, it can increase the statutory reserve ratio, thereby limiting the credit expansion ability of commercial banks, reducing the money multiplier, and ultimately shrinking the amount of money and credit, and vice versa.

The deposit requirement ratio is the ratio of the deposit reserve required by the bank to ensure that the deposit reserve is prepared by the financial institution to ensure the customer's withdrawal of deposits and the liquidation of funds. The reserve was originally intended to guarantee payment, but it brought an unexpected by-product, that is, it gave commercial banks the function of creating money, which could affect the credit expansion ability of financial institutions, thereby indirectly regulating the amount of money. It has now become an important tool of the bank's monetary policy and one of the three traditional monetary policy tools.

Deposit reserve refers to the deposit deposited by financial institutions in the bank in order to ensure the needs of customers to withdraw deposits and fund liquidation, and the proportion of the deposit reserve required by the bank to its total deposit is the deposit reserve ratio.

Deposit reserve, also known as statutory deposit reserve or deposit reserve, refers to the deposit in ** bank prepared by financial institutions to ensure that customers need to withdraw deposits and settle funds. **The reserve requirement ratio (RRR) is the ratio of the bank's reserve requirement to its total deposits. By adjusting the reserve requirement ratio, banks can affect the credit expansion ability of financial institutions, thereby indirectly regulating the amount of money.