It will accordingly be an important function of the new Central. Reserve Bank to exercise such an influence over the domestic price level that prices in China do not get seriously out of alignment with those prevalling elsewhere, and in particular in the "countries with which China ids to. maintain practics change stability. Experie shown that to control. prices is in any country far from easy, but, in the stage of economic and Anancial organization in which China now finds herself, such an attempt must necessarily éneoufhter many dificult ties.
To achieve its purpose at control ling the purchasing power of the currency unit a central bank must bbe able by credit regulation to large or compress what the toxtbooks call "the consumer's income and outlay," and. its method of operation is through the influence it is able to exert over the lending operations of the commercial banks. It may accordingly be anticipated that the new Central Reserve Bank's charter will make provision for the maintenance by the commercial banks of a more or less fixed per~ centage of their cash reserves with the Central Reserve Bank. Without going into the details of a technical object It may be pointed out that, singe the lending operations of commercial banks are limited by the amount of their cash reserves, and since a central bank has the power of increasing or decreasing those Feserves by increasing or decreasing is own assets, by a process known as "open market" operations," itis ble to expand or contract the out-Standing volume of credit, und 60 of currency, as may be judged expedient inthe circumstances of the moment. It will, of course, be neces sary in this connection to. ensure effective control of the right of note (Continued on -page °566)
Text read from the printed page and cleaned; old type leaves the occasional error.