2013-07-21

China removes the interest rate floor on loans

China has taken a major step in banking reform by eliminating the interest rate floor on loans. If all banks charge the same rates, then it favors the large and powerful banks that can offer greater service and complementary financial products for borrowers.

It is a small step that will lead to a more efficient banking sector, but it needs to be viewed properly. Here's the wrong view:

Why China's "Interest Rate Liberalization" Is Much Ado About Nothing

It isn't much ado about nothing; it is another item on the reformers' checklist. A 10,000 mile journey begins with a single step, and a major economic reform program begins the same way.

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