China: Reserve Requirements, 2015-2016

Carey Mott

Journal of Financial Crises, 2022, vol. 4, issue 4, 393-428

Abstract: After China devalued the renminbi against the US dollar in August 2015, Chinese equity markets experienced a significant drop that spilled into international markets. The People's Bank of China (PBOC) adjusted the reserve requirement ratio (RRR) five times between February 2015 and October 2015: three times before the market turmoil, to allocate credit to preferred sectors, and twice in response to the crisis to release liquidity into the financial system. Throughout this cycle, the central bank applied lower RRRs to rural credit institutions, agricultural lenders, leasing and financing companies, and other sectors in which government policy promoted lending. Although the central bank once favored the RRR as a cost-effective monetary policy tool, its use had declined in recent years as its purpose changed. The RRR cuts injected a substantial amount of liquidity into the financial system. For illustration, the deposits of financial corporations with the PBOC declined by 2.1 trillion yuan (USD 330 billion) between the end of March and the end of December 2015, from 22.7 trillion to 20.6 trillion yuan; other government policies would have also affected bank reserves during this period. Since 2013, the PBOC had a suite of lending facilities designed to provide market-based liquidity, reducing the need for RRR cuts as a liquidity provisioning tool in 2015. Following the China Scare, the PBOC continued to adjust the RRR to allocate credit to preferred sectors of the economy and, increasingly, to implement macroprudential policy.

Keywords: China; China Scare; liquidity rules; PBOC; reserve requirements; reserve requirement ratio (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://elischolar.library.yale.edu/cgi/viewconten ... -of-financial-crises (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ysm:ypfsfc:v:4:y:2022:i:4:p:393-428

Access Statistics for this article

More articles in Journal of Financial Crises from Yale Program on Financial Stability (YPFS) Contact information at EDIRC.
Bibliographic data for series maintained by ().