China uses reserve requirements to restrict money supply; they call it quantitative tightening

While the US is using Quantitative Easing to loosen their money supply, China is practicing Quantitative Tightening instead of using the interest rate hikes.  They are forcing the countries largest lenders to hold more capital and consequently lend less, via Reuters:

The China Central bank ordered six major lenders this week to set aside more funds as reserves, a move that locked up some excess cash in the economy while also relieving investors who saw it as a softer tightening alternative to an interest rate increase.

... the reserve requirement rise was aimed to keep this year's new loans within the government's target of 7.5 trillion yuan ($1.1 trillion) and that China may cap full-year lending at 8 trillion yuan in 2011.


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