主题：经济学概念探讨2.2 –人民币发行知识的整理 -- 牛义缂

This method helps to reduce "currency outstanding", or M0.

It will create an interest expense payable to China's domestic financial institutions, but since USD "foreign reserve holdings" (an asset item on PBOC balance sheet) also have interest income from US agency bonds or treasury bonds, therefore, those interest income can cover the interest expense.

Currently, since USD treasury note rate is too low and 央票 rate could be high, therefore, interest expense might be quite high for interest income to fully cover.

That will result in paper loss on the PBOC income statement.

But 央票 is a perfect tool to reduce M0 and thus liquidity.

Another way is to increase reserve ratio--which has huge impact on money multiplier and M2/M3. PBOC practiced that tool for several years since 2001. But this tool has many side effects and was disgusted by most Chinese banks.