Debt consolidation services
Debt consolidation services
High reserve requirements tax financial intermediation, burden commercial banks, add to financing costs, and encourage shadow banking activities for regulatory arbitrage. Ironically, the implicit tax burden imposed by the reserve requirements on commercial banks may double to 2/3 percent of GDP now in an environment of more liberalized interest rates from below 1/3 percent of GDP during 2004–2010 (McCauley and Ma, 2015). In other words, the distortions from reserve requirements worsen following interest rate deregulation. Thus, financial liberalization and interest rate deregulation ought to be accompanied by a meaningful reduction of the currently excessive reserve requirements. Hence, our proposed scheme of swapping the existing captive PBOC liabilities (required deposits) for new tradable MoF liabilities (CGBs) facilitates both capital market development and financial liberalization.
Debt help management
Note: there can be a variety of similar schemes (for details, see McCauley and Ma, 2015). Source: author’s calculation.
Debt management budgeting
If the current 18 percent RRR is to be halved to 9 percent, the liquidity thus released is estimated to be almost RMB10 trillion and could easily fund a doubling of the CGBs out- standing, from the RMB8.6 trillion to more than RMB17 trillion (from USD1.4 trillion to USD2.7 trillion). The CGB market thus would overnight become one of the top three sover- eign debt markets in the world (Figure 6). By 2020, the CGB market would exceed USD5 trillion, amounting to about one third of the U.S. treasury market and some 60 percent of the JGB market. The CGB market would potentially qualify as a serious contender of a global asset class.
