To control the money supply and prevent inflation, the People’s Bank of China

(PBC), which is confronted with a permanent current account and capital account surpluses, uses mostly two tools to sterilize the foreign currency inflows: the variation of the Required Reserve Ratio (which obliges the banks to make a deposit to the Central Bank corresponding to a percentage of the credits they grant) and the selling of “Central Bank Bills.” Elaborate and explain the pros and cons of each type of intervention.