Sunday, April 19, 2015

My letter to the WSJ re: One trillion dollars, not $200 billion

Re: China Central Bank Cuts Reserve Requirement

Dear Sirs:
Your statement that the reserve requirement cut to 18.5% by the PBOC will free up $200 billion for new lending probably is understated. Assuming that the $200 billion refers to new excess reserves (admittedly, not made clear), the amount of new lending that can be supported by this action is just over one trillion dollars--the additional reserves divided by the new reserve requirement.

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