Friday, November 23, 2012

Chinese monetary policy changing

The Ban of China has more actively used open market operations to implement monetary policy. They are becoming more like Western central bankers and less dependent on changes in reserve requirements  or loan policies. This is a natural part of the maturity of financial markets in China and the reduced dependency on bank lending. 

Reserve requirements are a very blunt instrument and not something that can be sued in a complex banking system. Still, capital flows through a limited number of state banks. There needs to be a more open financial system but it is unlikely to occur under the current government. 

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