Bank Reserve Ratio at China

According the news reports by China Daily, the Chinese central bank - the People's Bank of China announced on Friday 11/3/2006 that it was to raise the deposit reserve ratio of banks by 0.5% to 9% starting from 11/15/2006. This was the bank's third time this year to raise the deposit reserve ratio or 1.5% in total. The central bank raised the bank deposit reserve ratio by the same margin of 0.5 percentage points in August and July 2006. The previous two hikes helped to take around 300 billion yuan out of the banking system.

If 1% represents 300 billion yuan, the total 100% is 30 trillion yuan. That means there is approximately 30 trillion yuan (or approximately 4 trillion US dollars) in the Chinese Banking system. It is likely the Chinese central bank will bring the reserve ratio in parity with the US.

I checked the Federal Reserve of the United States. The current bank reserve requirement is set at 10%, which has not been changed for many years. The US Fed uses mainly the discount rate to realize its policies.

It is expected that the Chinese central bank will raise its reserve ratio two more time to bring it to 10%, the same ratio adopted by the US Federal Reserve. So the Chinese yuan can appreciate another 11% in the next one to two years.

1/15/2007 Update. Central Bank of China announded on Friday 1/5/2006 that starting from 1/15/2007 it would raise the bank reserve ratio by 0.5% to 9.5%。This is the fourth time it raised this key rate since April 2006. Its total deposits reached 33 trillion yuan.

Effective on 12/25/2007, China raised the reserve ration again (the 10th time) to 14.5%, or approximately 1/7, compared with 1/10 for the US banks.