It shows just how much high-powered money there is in the system.
In their program to maintain a low currency value, China has purchased dollars from its exporters with newly created cash.
All this cash is now in the system.
The only way to cool lending is to increase the reserve's banks must keep in their vaults.
The important point here is the Fed might choose the same tactic here in the US.
* * * * * J B K * * * * *
San Francisco
By JOE McDONALD, AP Business Writer Joe Mcdonald, Ap Business Writer – Fri Feb 12, 6:49 am ET
BEIJING – China ordered banks Friday to increase reserves for a second time in a month to cool a credit boom without resorting to interest rate hikes that might derail a recovery in the world's third-largest economy.
Chinese leaders worry that a stimulus-driven torrent of lending is fueling a dangerous bubble in stock and real estate prices. They also are concerned that the flood of money surging through the economy is adding to inflation.
Beijing declared China had emerged from the global crisis after economic growth rebounded to 10.7 percent in the final quarter of 2009. But authorities say the global outlook is still uncertain, and analysts expect them to try to avoid rate hikes even as they start winding down their stimulus.
Banks were ordered Friday to increase reserves by half a percentage point — to 16.5 percent for large lenders and to 14.5 percent for smaller institutions. Rural lenders that serve farmers were exempted to guarantee adequate credit for agriculture.
http://news.yahoo.com/s/ap/20100212/ap_on_bi_ge/as_china_economy
