ABSTRACT
The initial policy action typically impacts bank reserves, which in turn impact the short-term interest rates that banks charge each other as well as longer-term interest rates and end users. China's transmission system also affects the availability of credit influencing the size of the loan or even the possibility that a loan application is turned down. The People's Bank of China has, as its broad monetary policy, this goal: Maintain the stability of the value of the currency and thereby promote economic growth. One simple way to think of China's reliance on a multiplicity of tools for managing monetary policy is in terms of the simple curves for the demand and supply of money. A benefit of greater capital mobility is either a lower cost of capital or higher returns. Another benefit is global portfolio diversification. Sterilization is the efforts of central banks to offset the impact of foreign exchange inflows on the domestic money supply using monetary tools.
