China's Increase in Reserve Requirements. The Chinese government purchased U. S. dollars in the foreign exchange market with Chinese currency. During the same period, the Chinese sharply raised the reserve requirement on banks because they wanted to prevent the money supply from expanding too rapidly. The effect of the Chinese government's purchase of U. S. dollars in the foreign exchange market with Chinese currency would be to the supply of Chinese currency.
Since the Chinese wanted to prevent the money supply from expanding too rapidly, they raised the reserve requirement on banks, the ability of banks to make loans, thereby the Chinese money supply.