In the open market operation described in the news clip, explain whether the People€™s Bank of China buys or sells securities. Illustrate the effects of the open market operation on the balance sheets of the banks and the central bank.

The People€™s Bank of China (the central bank of China) indicated it would lower interest rates and inject 685 billion yuan ($105 billion) into the banking system through open market operations.

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Change in Banking System Balance Sheet Assets Liabilities (billions of yuan) Reserves at the Checkable deposits 0 PBC 685 Securities -685 Savings deposits Loans Change in People's Bank of China Balance Sheet Assets Liabilities (billions of yuan) 685 Securities 685 Reserves of banking system