Sunday, November 21, 2010
China raises reserve requirement again
The People's Bank of China raised the reserve requirement ratio for its banks by a half-percentage point on Friday in an attempt to control the flow of new money and combat inflation. I wonder how Bernanke feels about this. China's increase is the second such move in days.
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One of the fears that has been raised about securities purchases by the Fed is high inflation rate in the long run. So, raising the reserve requirement ratio might be instrumental in solving this imminent problem in the U.S.
ReplyDeleteBanks today are worried about lending out their money to people. As we see what is going on in China, we see this all over the world that banks want to keep more money in reserves rather then lending it to people.
ReplyDeleteBut the reason China has raised its reserve requirement is because banks in China are lending too much. Ex) real estate bubble
ReplyDeleteThe other comment about the need for this because of the inflow of money - this is referring to foreign entities investing heavily in China. This brings in a lot of money - the same reaction an increase in the money supply would have.