What are the means of tightening monetary policy? The impact of tight monetary policy on foreign exchange?

Tight monetary policy generally refers to a tightening monetary policy, which is a policy tool adopted by the central bank to achieve macroeconomic goals. This monetary policy is a policy of tightening money when inflation occurs in the economy. This article will introduce the means of tightening monetary policy and the impact of tightening monetary policy on foreign exchange.

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What are the means of tightening monetary policy?

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Public business: Use treasury bonds, policy financial bonds, etc. as transaction types, mainly including repurchase transactions, spot bond transactions and issuance of central bank bills to adjust the credit capital needs of financial institutions.

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Deposit reserve: By adjusting the deposit reserve ratio, it affects the credit fund supply capacity of financial institutions, thereby indirectly regulating the money supply.

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Bank loans: The re-lending policy and re-discount policy are used to adjust the demand for credit funds of financial institutions and affect the supply capacity of credit funds of financial institutions.

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Expected annualized interest rate policy: According to the needs of the implementation of the monetary policy, the expected annualized interest rate tool is used in a timely manner to adjust the expected annualized interest rate level and expected annualized interest rate structure, thereby affecting the supply and demand of social funds and achieving the established goals of monetary policy .

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Exchange rate policy: affect international trade through exchange rate changes and balance the international balance of payments.

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Standing lending facilities: improve the effect of monetary regulation, effectively prevent liquidity risks in the banking system, and enhance the regulation of expected annualized interest rates in the money market.

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The impact of tight monetary policy on foreign exchange

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Generally, the central bank's monetary tightening policy is to raise interest rates or increase the reserve ratio. It is a fact that the market is overheated. A certain amount of bubbles can promote economic development. Too much bubbles are a kind of market frenzy for speculation. The reason is very simple. There is indeed too much money, and there is no need for so much money in the market. If there is no tightening at this time, the consequence is that the exchange rate will fall. After the tightening policy, after the supply and demand balance in the market, the exchange rate is unlikely to fall sharply.

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If an economy develops benignly with loose monetary policy and all indicators are normal, it will not use tightening policy. With one exception, the easing policy expires. This is unavoidable, such as the Fed's 10-year easing by issuing Treasuries. After the maturity, the balance sheet must be reduced, and the funds in the market must be recovered to repurchase these government bonds, so that the US dollar will not lose its credit. This is not a time for monetary tightening when the market does not need money.

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In general, monetary policy is a regulatory tool used against the economy. Exchange rate changes are related to the overall state of the economy combined with the central bank's monetary policy, and are the result of a combination of forces. Instead of simply raising interest rates, the exchange rate will rise, and interest rates will fall, which is black and white.

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On the issue of tightening monetary policy, this article introduces the means of tightening monetary policy and the impact of tightening monetary policy on foreign exchange. In a word, tightening monetary policy is the country's macro-control of the market, and tightening monetary policy will affect the exchange rate, so foreign exchange investors need to pay attention to relevant policies and adjust investment transactions in a timely manner.