Glamor Economics

Chapter 107

Chapter 14, Section 8 The Warm Assistance of Sending Charcoal in the Snow——Rediscount Policy
On September 2001, 9, a few hours after terrorists crashed the World Trade Center in New York, although Greenspan, who was meeting in Switzerland, was still unable to return to the United States because of the no-fly order, the Federal Reserve Board immediately announced the Banks across the United States ship cash to guarantee the bank's payment, the discount policy.In order to ensure the normal operation of the entire U.S. banking system and financial institutions, the Federal Reserve has supplemented the U.S. banking system with special temporary reserve funds of 11 billion U.S. dollars the day after the terrorist attack; on September 382, the U.S. Federal Reserve Board once again Loans to commercial banks through open market operations amounted to US$5000 billion, equivalent to 9 times the total amount of loans to commercial banks in the three days before the terrorist incident.

As a result, a payment crisis that could have had serious consequences was successfully resolved before it even had time to emerge.In the 30 days since the crisis broke out, no city in the United States has had a deposit run, no bank has failed because of a payment crisis, and no bank has even had payment difficulties.

From this, it is not difficult to see that the rediscount policy of the US central bank has sent confidence and warmth to the market.The central banks of many modern countries use rediscount as a major monetary policy tool to control credit. Rediscount means that commercial banks or other financial institutions transfer undue bills obtained by discounting to the central bank.For the central bank, rediscounting means buying bills held by commercial banks, outflowing real money, and expanding money supply.For commercial banks, rediscount is to sell discounted bills to solve the temporary shortage of funds.The entire rediscount process is actually the process of buying and selling bills and transferring funds between commercial banks and the central bank.The so-called rediscount policy is a financial policy in which the central bank intervenes and affects the market interest rate and the supply and demand of the money market by formulating or adjusting the rediscount rate, thereby regulating the money supply in the market.

There are two types of rediscount policies:
One is the long-term rediscount policy, which includes two types: one is the restraint policy, that is, the central bank adopts a long-term policy of rediscount rate higher than the market interest rate, which increases the cost of rediscount, thereby restraining the demand for funds, shrinking money supply, and reducing market demand. money supply; the second is supporting policies, that is, the central bank adopts a long-term policy of rediscount rate lower than the market interest rate to relax discount conditions and reduce rediscount costs, thereby stimulating capital demand, loosening monetary conditions, and increasing market money supply.

The other type is the short-term rediscount policy, that is, the central bank sets a rediscount rate higher or lower than the market interest rate at any time according to the market supply and demand of funds, so as to affect the cost of borrowing funds and excess reserves of commercial banks, and affect the market interest rate. , so as to regulate the supply and demand of funds in the market.

The rediscount policy has the following three functions:

1. It can affect the cost of funds and excess reserves of commercial banks, thereby affecting the financing decisions of commercial banks and making them change their lending and investment activities.

2. It can produce a notice effect, usually indicating the policy intention of the central bank, thereby affecting the expectations of commercial banks and the public.

3. It can determine which bills are eligible for rediscounting, thereby affecting the capital investment of commercial banks.

Of course, whether the effect of the rediscount policy can be played well depends on the flexibility of the money market.Generally speaking, commercial banks in some countries mainly rely on the central bank to finance funds, and the rediscount policy has greater flexibility in the currency market, and the effect is greater; commercial banks in some countries rely on the central bank to finance a small amount of funds, and the rediscount policy has a greater impact on the currency market. The smaller the elasticity in the market, the smaller the effect.Nevertheless, the adjustment of the rediscount rate still has a wider impact on the money market.

[links to related words]

Rediscount is relative to discount. Commercial banks sell bills to the central bank before the bills expire, and get loans from the central bank, which is called rediscount.The interest rate charged by the central bank for discounting loans to commercial banks is called the rediscount rate.

Rediscount policy The so-called rediscount policy is a financial policy in which the central bank intervenes and affects market interest rates and the supply and demand of the money market by setting or adjusting the rediscount rate, thereby regulating the money supply in the market.

(End of this chapter)