news

according to the financial data released by the central bank, the reporter of daily economic news calculated that the money multiplier at the end of july was 8.3232 times, which was higher than that at the end of june and reached the second highest level in history. it is reported that since february this year, the money multiplier has continued to remain above 8 times.

the reporter noted that this is roughly the opposite of the overall historical trend of the deposit reserve ratio. since november 2011, the deposit reserve ratio has been declining year by year.

the money multiplier reached a record high in may this year

according to the definition of the central bank, the money multiplier is the quantitative expression of the relationship between the base money provided by the central bank and the expansion of the money supply. that is, the ratio by which the total money supply can be expanded or reduced after the central bank expands or reduces a certain amount of base money. it is also called the expansion multiple of base money, and the basic calculation formula is: ms=bm.

the impact of the money multiplier on money supply is mainly manifested in two aspects:first,when the supply of base money increases, the money multiplier amplifies the expansion effect of base money by a certain multiple;second,when the base money supply remains unchanged, the larger the money multiplier, the larger the money supply.

from the perspective of money supply, broad money has grown rapidly since the 1990s, from 731.522 billion yuan in october 1996 to 30330.6078 billion yuan in july 2024, an increase of more than 40 times in less than 28 years.

from the perspective of factors affecting the money multiplier, the main factor is the statutory reserve ratio, but in the actual economic operation process, the money multiplier will also be affected by other factors.such as cash leakage, excess reserves, changes in demand deposits, etc.。

cash leakage, also known as liquidity preference, refers to the increase in cash on hand due to the public's preference for cash. cash leakage is equivalent to an increase in reserves or an increase in the reserve ratio; excess reserves refer to the portion of the bank's reserves that exceeds the statutory reserves. excess reserves will reduce the money multiplier; the denaturation of demand deposits refers to the conversion of a portion of demand deposits into non-personal time deposits. banks must deposit statutory reserves for them, and the money multiplier will also decrease.

on february 5 this year, the central bank provided long-term stable and low-cost funds to the banking system. the people's bank of china lowered the deposit reserve ratio of financial institutions by 0.5 percentage points, releasing more than 1 trillion yuan of medium- and long-term liquidity. it is reported that the reserve ratio cut at the beginning of the year is conducive to sending a policy signal of increasing the intensity of macroeconomic policy regulation, boosting market confidence, and also conducive to optimizing the structure of the central bank's supply of liquidity to the banking system. after the reserve ratio cut, the weighted average deposit reserve ratio of financial institutions was 7.0%.

after the rrr cut, the money multiplier jumped from 7.89 times at the end of january 2024 to 8.05 times at the end of february 2024, and has remained above 8 times for six consecutive months. data shows thatthe highest level of money multiplier in history is 8.40 times at the end of may 2024.according to the financial data released by the central bank, the reporter of daily economic news calculated that the money multiplier at the end of july was 8.3232 times, which was higher than that at the end of june and reached the second highest level in history.

industry: the central bank may still cut the reserve requirement ratio in the second half of the year, and the money multiplier may hit a new high by then

from the origin of the money multiplier, it comes from the credit activities of banks and has a deep connection with the so-called bank reserve ratio. after the emergence of central banks, countries began to notice the role of reserve ratios in regulating the behavior of commercial banks, and began to use the method of adjusting reserve ratios to control the behavior of commercial banks. the central bank sets the reserve ratio standard and requires commercial banks to deposit the specified reserves into their accounts at the central bank.

this reserve requirement set and controlled by the central bank is called the "legal reserve requirement", and the reserve ratio set by the central bank is called the "legal reserve ratio". for example, if a commercial bank absorbs 1 billion yuan in deposits and the legal reserve ratio is 10%, then it must deposit 100 million yuan into its account at the central bank. the central bank can expand or contract the money supply several times by adjusting the amount of base money. therefore, base money constitutes the basis of the market money supply.

in the modern banking system,the central bank regulates macro-financial activities mainly by controlling the amount of base money.when the central bank raises or lowers the deposit reserve ratio, commercial banks will adjust their assets and liabilities and increase or decrease their reserves at the central bank accordingly. through the effect of the money multiplier, it can have a tightening or expansionary effect on the money supply.

in addition, changes in the cash held by the public will also cause changes in derivative deposits, thereby affecting the expansion or contraction of the money supply. on the one hand, when the public deposits cash in a bank, the bank can make loans at a certain ratio (i.e. after deducting the payable reserves), thereby causing a series of deposit expansion processes in the banking system; on the other hand, when the public withdraws cash from the bank, it will cause a series of deposit contraction processes in the banking system.

judging from the latest economic developments and taking all factors into consideration, wang qing, chief macro analyst at orient securities, believes that the central bank may still cut the reserve requirement ratio in the second half of the year. when the reserve requirement ratio is cut, more funds will be released, and the money supply will increase further, and the money multiplier will most likely reach a new high.

for example, lowering the deposit reserve ratio means that the amount of funds available for lending after commercial financial institutions absorb deposits increases, and company a obtains more loans; after the funds are paid from company a to company b, the deposits in company b's account increase again, forming more derivative deposits; then loans are issued again at a higher ratio, and the money increases according to the multiplier effect; this is ultimately reflected in an increase in the amount of loans, an increase in the amount of broad money, and a more relaxed liquidity situation felt by the real economy and financial institutions.

this is the mechanism of the deposit reserve ratio in economic operation. from the "source" of base money to the "flow" of deposit creation, the money supply is finally formed. in this process, increasing the base money by 1 yuan will cause the money supply to expand several times. how much change will the central bank cause in the end if it changes the base money by 1 yuan? this is the meaning of the money multiplier.

daily economic news