Glamor Economics

Chapter 100

Chapter 14 Mobilizing the Whole Body to Create a Good Economic Environment——Monetary Policy

Section 1 Adjusting the Currency and Invigorating the Economy - Monetary Policy

Monetary policy is said to affect the whole body. The government changes the economic environment by adjusting the supply of money to ensure the comprehensive and coordinated development of the national economy.How did monetary policy come into being? Below is an example of a community in the United States issuing “care coupons,” which can help us understand how monetary policy came about.

In one community in the United States, some young couples formed a mutual aid society to help each other with childcare.Because in the United States, it is illegal to leave children alone at home.These young couples came up with a clever plan: today Tom's couple will leave their children to Cindy's when they want to go out. Cindy and his wife have to take care of their own children anyway, and it doesn't take much effort to take care of a few more; If the Cindy family wants to go out another day, they can leave the child in the care of the Tom family.This idea was unanimously approved by everyone, and 150 young couples signed up to participate.This is a bit difficult, how can we ensure that everyone gets a fair chance?That is, how can each couple care for other people's children the same number of times as their own children?The managers of the mutual aid club came up with a way: issue "care coupons" to each couple.Everyone helps each other with "care coupons".For example, if Tom's children are to be taken care of by Cindy's family for two hours, then Tom and his wife have to give Cindy and his wife two "care coupons".In this way, as long as no one cheats and forges "care coupons", each couple's contribution will roughly equal the return.

But for some reason, after a period of time, people found that the number of "Guarding Coupons" in circulation became less and less.then.Couples became vigilant and began to save "care vouchers" for emergencies, and they no longer love to go out as usual, so they don't need to waste too much "care vouchers".Because one couple's going out is another couple's opportunity to earn "care vouchers", everyone feels that "care vouchers" are becoming more and more difficult to earn, and they are even more reluctant to go out.As a result, the mutual fell into a kind of "recession" similar to insufficient aggregate demand and output below production capacity.The amount of childcare is less than the capacity to care for children.

Reluctantly, the couples who participated in the mutual aid club thought of the law, and reached an agreement that each couple would go out at least twice a month.But the problem was not solved, and everyone was still reluctant to go out.In the end, it was the economists who came up with the idea to let the mutual aid societies increase the issuance of "care vouchers".In this way, there are more "care coupons" in circulation, and couples have less worries about going out, so there are more opportunities to earn "care coupons" by taking care of their children, and there are more "care coupons" in circulation... So, the cooperative started from Came out of the "recession".

This example has the same meaning as our real monetary policy.The object of monetary policy adjustment is the money supply, that is, the total purchasing power of the whole society, and its specific manifestations are: cash in circulation and bank deposits of individuals, enterprises and institutions.Cash in circulation is closely related to changes in consumer price levels and is the most active currency. It has always been an important target of the central bank's attention and adjustment.The main measures taken by monetary policy include the following aspects:
1.open market business.In most developed countries, open market operations are the main monetary policy tool for the central bank to handle base money and regulate market liquidity. The central bank conducts securities and foreign exchange transactions with designated dealers to achieve the goal of monetary policy regulation.

China's open market operations include RMB operations and foreign exchange operations.The foreign exchange open market operation was launched in March 1994, and the RMB open market operation resumed trading on May 3, 1998, and the scale gradually expanded. Since 5, open market operations have become an important tool for the daily operation of the People's Bank of China's monetary policy, and have played a positive role in regulating the money supply, regulating the liquidity level of commercial banks, and guiding the trend of interest rates in the money market.

2.deposit reserve policy.Deposit reserve refers to the funds prepared by financial institutions to guarantee customers' deposit withdrawal and fund liquidation needs. The ratio of the deposit reserve paid by financial institutions to the central bank in accordance with the regulations to its total deposits is the deposit reserve ratio.The deposit reserve system is established under the central bank system.The initial function of the deposit reserve system is to guarantee the payment and liquidation of deposits, and then gradually evolved into a monetary policy tool. The central bank adjusts the deposit reserve ratio to affect the credit fund supply capacity of financial institutions, thereby indirectly regulating the money supply.

3.Central bank loans.Central bank loans (customarily called re-lending) refer to loans issued by the central bank to financial institutions. They are an important channel for the central bank to regulate the base currency and a traditional policy tool for financial regulation.

An increase or decrease in central bank lending will cause an increase or decrease in base money.The central bank loan is one of the important distribution channels of the base currency and one of the important means for the central bank to regulate the base currency.

4.interest rate policy.Interest rate policy is an important part of my country's monetary policy and one of the main means of monetary policy implementation.According to the needs of monetary policy implementation, the People's Bank of China uses interest rate tools to adjust the interest rate level and interest rate structure in a timely manner, thereby affecting the supply and demand of social funds and achieving the established goals of monetary policy.

In May and July 1993, the People's Bank of China raised deposit and loan interest rates twice in response to the then overheated economy and rising market prices, and raised loan interest rates twice in January and July 5. These adjustments were effective. Inflation and fixed asset investment scale were controlled. In May and August 7, October 1995 and March 1, in view of the fact that my country's macroeconomic regulation and control has achieved remarkable results and market prices have dropped significantly, the central bank lowered deposit and loan interest rates in a timely manner, while protecting the interests of depositors. Basically, it has a positive impact on reducing the interest burden of enterprises, especially state-owned large and medium-sized enterprises, and promoting the steady development of the national economy.

5.exchange rate policy.Exchange rate policy refers to the policy means adopted by the government of a country (or region) to determine or control the exchange rate between the domestic currency and foreign currency at an appropriate level through the promulgation of financial laws and regulations, the implementation of policy regulations or measures, in order to achieve certain goals. .

[links to related words]

Narrowly defined monetary policy refers to the central bank's use of various tools to adjust the money supply and interest rates to achieve the established economic goals (stabilizing prices, promoting economic growth, achieving full employment and balancing the balance of payments), thereby affecting the aggregate of macroeconomic policies and measures. .

Broad monetary policy refers to all monetary regulations and measures taken by the government, the central bank and other relevant departments to affect financial variables.

(End of this chapter)