A. To control the money supply and prevent inflation, the People’s Bank of China ( PBC) confronted with a permanent current account and capital account surpluses, uses mostly two tools to sterilized the foreign currency inflows, the variation of the Required Reserve Ratio and the selling of “Central Bank Bills”. Elaborate and explain the pros and cons of each type of intervention. 

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Pros of intervention Manage and control exchange rate expo... View the full answer