The Role Of Reserve Ratio Requirements In China – A Brake For Credit Growth?

by Dr. Dirk Ehnst

I have recently presented some joint work with Finn Körner, showing Chinese data at a conference in Berlin. We had the impression that China is using the reserve ratio requirements (RRR) to fight inflation. Increasing the RRRs would lessen room for the banks to expand credits. This would only work if banks care about the RRR. In case they are not constrained by RRRs, changes in the RRR might only have psychological implications, which doesn’t mean that they wouldn’t work.