Rethinking Monetary and Financial Policies in China

22 Pages Posted: 13 Sep 2014

See all articles by Il Houng Lee

Il Houng Lee

The Bank of Korea - Monetary Policy Department; Korea Institute for International Economic Policy

Murtaza H. Syed

International Monetary Fund (IMF)

Da Young Yang

Korea Institute for International Economic Policy

Date Written: August 29, 2014

Abstract

There is partial consensus that the size of money — or liquidity — in China should be large reflecting the high savings rate. Even so, with a sense of a liquidity overhang from the recent monetary expansion, many caution against expanding liquidity further lest it translate into a property bubble. Instead, they argue for ways to speed up the circulation of liquidity — in other words to raise velocity — to stimulate the real economy. The recent growth of the non-banking system adds to these concerns, and has been criticized as falling short of promoting effective financial intermediation. Some even claim that the monetary authorities may be losing control over the growth of key monetary aggregates. Against this background, this paper reviews recent monetary developments in China and considers how monetary aggregates and the financial system may have to change to support the rebalancing of the economy.

Keywords: monetary system in China, money supply, monetary policy

JEL Classification: E42, E51, E52, E58

Suggested Citation

Lee, Il Houng and Syed, Murtaza H. and Yang, Da Young, Rethinking Monetary and Financial Policies in China (August 29, 2014). KIEP Research Paper No. Staff Papers 14-02. Available at SSRN: https://ssrn.com/abstract=2495187 or http://dx.doi.org/10.2139/ssrn.2495187

Il Houng Lee (Contact Author)

The Bank of Korea - Monetary Policy Department

39, Namdaemun-ro
Jung-gu
Seoul, 100-794
Korea, Republic of (South Korea)

Korea Institute for International Economic Policy ( email )

Seoul 137-602

Murtaza H. Syed

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Da Young Yang

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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