Control of the Chinese currency

[yota691]

Control of the Chinese currency

   

Entirely certain that Beijing overload the issuance of its currency the yuan, but the reason behind the growth of liquidity huge in China and the most effective strategy to control it are things remain less clear, and the fact that the last decade was a "golden age" of economic growth  and the highinflation low in China. It is the year 2003 to 2012 the average GDP growth China's annual 1.05%, while prices rose by only 3% per annum. , but remain speed is unprecedented and the size of monetary expansion in China is a concern, because this may lead to higher inflation and the emergence of price bubbles assets and the growth of debt and capital flows around the outside.
 

The data show that the People's Bank of China (the central bank), the broad money supply reached 97.4 trillion yuan (15.6 trillion U.S. dollars), or 188% of GDP as of the end of last year. For comparison Valmarod cash broadband in the United States amounts to about 63% of GDP only.According to Standard Chartered Bank, China occupies the first rank globally in terms of total money supply broadband and currency issued recently, in 2011 was Beijing accounts for an estimated 52% of added liquidity in the world.
 

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according to Standard Chartered Bank data, China ranks first in the world in terms of total broad money supply and the newly-issued currency, in 2011 the Beijing holds an estimated 52% of the added liquidity in the world 
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Factors for evaluation
, but horizontal comparison of the values ​​of absolute is not sufficient to assess the true size of versions of cash in China, it must put many other factors into account, including the structure of China's financial and funding models and the savings rate and stage of economic development, as well as the relationship between the currency and finance in China.

The version of economic intense for money in China is a major factor in pushing the money supply has to increase, but the sharp rise hit rate version of money in the second-largest economies in the world can not be judged against the high rates fixed in developed countries without have to keep in mind that the process of issuing money in China began in the late much about, and it is characterized by a distinct structure and institutional base.

When Beijing began to liberalize the economy and deepen reforms and became bound more toward a market economy government has worked to facilitate the liquefaction continuous resources, including natural resources, labor, capital and technology, and by ensuring that delivered consistently to the market. This has led it to the high demand for the currency , which resulted in the expansion of the monetary base, in under multiplier Mali - the sense of the impact on lending by commercial banks - also worked to increase the money supply.
 

With the adoption of GDP increasingly on government-led investment, the demand for the currency continues to rise. In fact, the rapid expansion in bank credit, which was required to finance government investment, which increased its rates are sky works to increase how liquidity in the financial system in China. vicious circle and the result of this has doubled the money supply broadband in China in the past four years, which is reinforced by the pack stimulus totaling four trillion yuan in 2008 and 2009. 

 

Exacerbated this trend by the decline in the efficiency of financial resources in the state sector, which is the result of restrictions budget imposed by implicitly cheap capital, which is easily accessible, and therefore maintain the growth rates of GDP requires a growing volume of credit and before cash is growing constantly. thus became Beijing stuck in a vicious circle of issuing currency, which encourages the growth of gross domestic investment, which in turn enhances the demand for capital. This would generate liquidity, which in turn works to stimulate economic growth.
 

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Beijing has become stuck in a vicious circle of issuing currency, which encourages the growth of gross domestic investment, which in turn enhances the demand for capital, and this would generate liquidity, which in turn works to stimulate economic growth 
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The key to controlling monetary expansion in China to clarify the relationship between the currency (the central bank) and finance (financial sector), and thus prevent the government from carrying out a second body of the issuance of currency. According to Ban Jong Xing - Deputy Governor of the People's Bank of China - the relationship between the central bank and the financial sector require the division of labor and the imposition of a system of checks and balances. Theoretically, the financial sector acting as an accountant for the Treasury and the government, while undertake PBOC role treasurer government. Nevertheless, the relationship between the currency and finance in practice remain obscure, as the lead parties and functions quasi-fiscal.tasks currency reflects the government's debt official low in China to a large extent the role of currency in the tasks of quasi-fiscal, nor command appears only in relation to the costs of write-offs resulting from on the reform of state-owned banks, but also in the acquisition of the banks' bad debts by funding commercial paper and buy bonds asset management companies, and the fact that such activities harm the budget of the People's Bank of China monetary policy and restrict.



 

On the other hand, this causes finance quasi-fiscal functions by excluding government deposits of money supply and it comes to government deposits with the Treasury and commercial banks, savings and the central treasury funds managed by commercial banks deposits. Due to the huge volume of financial deposits - which totaled 2.4 trillion yuan (3.3% of broad money supply) at the end of 2010 - the impact on the money supply can not be ignored.

The clarification of the relationship between the currency and finance is essential to ensure that all newly issued currency asset-backed. And it becomes possible to address the excessive issuance of currency in the long run only through the imposition of more stringent budget constraints on the public sector, and the reduction of fiscal expansion and reduce dependence on government-led investment.

Fellow China Information Center, and associate the China Foundation for International Studies, and a researcher with the China platform for macroeconomic research.

 

[PA10]

Yota, thanks for the post. What language was this mess translated from? There are some subtleties lost in translation here I would like to have a better grasp of.