Monetary Policies in China Free Sample †MyAssignmenthelp.com

Question: Discuss about the Monetary Policies in China. Answer: Two examples of Monetary Policies in China: Tightening Monetary Policy by Raising Money Market Rates: The central bank of china has tightened the monetary policy by increasing the interest rates charged by it in the operations of the open market (Mankiw, 2014). The tightening of monetary policy aims to additionally deleveraging, in order to prevent the overheating growty of credit and broaden the advantage of yield for the Chinese bonds that the country have on the US debt in order to support the Yuan. With the rebounding of the factory price following the years of deflation policy makers have made avoiding monetary system risk forming as a key theme in the recent years (Taussig, 2013). The move is aimed at pushing up the cost of funding the short term tenors in order to rein leverage by switching the combination of less monetary stimulus for gaining more financial support. Tightening of the lending facilities and rates of the money markets represents the central banks desire of making further progress on the liberation of the interest rates. Reserve Requirements: Reserve requirements have currently been utilized as the extensive form of monetary policy tool. The mandatory reserve ratio was lowered as the part of allowing the banks so that they can manage their funds in better way (Bernanke et al., 2015). Along with the changes in the reserve requirements, there has been an introductions of differentiated reserve requirements. This impacted the second tier banks, along with the joint stock commercial banks which accounted significant portion of the rise in the growth of lending during the year 2003. Banks under this classification failed to meet the requirements in regard to the superiority of their loan portfolio with capital competency were subjected to a reserve obligation of 8% (Laibson List, 2015). Effects of Global Financial Crisis on China: The global financial crisis unleased a series of significant effects on china that ranged from the collapse of stock market to falling of financial institutions and economy wide recession. In the initial stages of the crisis financial channels were most severally impacted since they had invested heavily in the securities that were related to US estate markets (Sunley, 2017). As a result of this, the investors suffered huge amount of loss. In spite of the fact that china was capable of maintaining a relatively higher growth of the economy but the adverse effect of the international financial crisis on china was sturdier than it realised. In the beginning stages of crisis FDI in china declined and recovered to around the pre-crisis level in the later stages. The global financial crisis impacted on theeconomic outlook of china and risk attitudes around the globe since it was not immune (Case et al., 2014). Beginning from the period of October 2007, the Chinese stock market crashed which eradicated greater than two-thirds of its market value. In addition to this, the export growth rate of china declined sharply to 2.2% from 20% in the month of October. Overall, the export of china declined by around 17% in the year 2009 prior to recuperating to positive growth in the year 2010. References Bernanke, B., Antonovics, K., Frank, R. (2015).Principles of macroeconomics. McGraw-Hill Higher Education. Case, K. E., Fair, R. C., Oster, S. E. (2014). Principles of Economics, Harlow. Laibson, D., List, J. A. (2015). Principles of (behavioral) economics.The American Economic Review,105(5), 385. Mankiw, N. G. (2014). Principles of Economics, 6th edn, Mason, OH, South-Western.National Revenue Report,2015. Sunley, P. (2017). Principles of economics. Taussig, F. W. (2013).Principles of economics(Vol. 2). Cosimo, Inc..