The Central Bank'S Currency Exceeds 43 Trillion Yuan &Nbsp, Or Will Explain The Current Situation Of China'S Currency.

Why China

In recent days, Wu Xiaoling, deputy director of the finance and Economic Commission of the National People's Congress and President of the Lujiazui International Financial Research Institute of central Europe (19.16,0.00,0.00%), admitted in an interview with China Economic Weekly in Shanghai: "in the past quite some time, the central bank had problems of excessive currency, especially in 2009, in order to deal with the financial crisis, the" extremely loose "monetary policy was adopted.

"In my view, the central bank hopes to release the central government's determination to control inflation expectations by raising interest rates, as well as a signal of steady return of monetary policy."

Wu Xiaoling said.

Some scholars commented that this time

Over 43 trillion yuan in currency

"It is too late for the central bank to raise interest rates, and the excessive issuance of money has been so serious that it is time to tighten policies to curb inflation."

Rosetta Stone Advisors Ltd director and independent economist Xie Guozhong told reporters: "we see that agricultural and sideline products, including mung beans, ginger, garlic and chili, are rising as a result of the central bank's currency overrun. Surplus money has been running around in the market. Over the years, excessive money has brought huge inflation risks to China's economic entities."

According to statistics released by the National Bureau of statistics, China's CPI rose 3.6% in September, a 23 month high, and food prices rose by 8% in the same month.

Then, is the gradual growth of CPI year-on-year caused by excessive currency?

"Inflation is a monetary phenomenon everywhere and everywhere" - this is a classic quote from the founder of monetary school, Freedman.

According to the basic principles of monetary science, the value of a country or region's economy increases by 1 yuan, and the central bank as a currency issuing institution should also provide a currency of 1 yuan, and the money supply exceeding 1 yuan is regarded as excessive.

In the emerging market countries, due to market reform and other reasons, the process of resource commercialization is intensified, and the broad money supply is moderately higher than the economic growth GDP growth is also reasonable.

But excessive money supply is extremely prone to inflation.

The relationship between inflation and excessive money has also been recognized by many Chinese scholars.

Zhou Qiren, member of the monetary policy committee of the people's Bank of China and economist, recently warned in his blog that "money tiger is getting bigger and bigger."

According to statistics, by the end of 2009, the GDP scale of 33 trillion and 540 billion yuan in China was 92 times the scale of 364 billion 520 million yuan GDP in 1978.

But in the same period, the broad money supply (M2, generalized money = cash in circulation + fixed time deposits in banks + savings deposits + securities company margin) increased from 85 billion 945 million yuan in 1978 to 60 trillion and 620 billion yuan at the end of 2009, 705 times.

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Wu Xiaoling said frankly: "over the past 30 years, we have driven the rapid development of the economy with excessive money supply."

According to official figures, the total amount of GDP in China in 2000 was 8 trillion and 900 billion yuan, and the broad money supply was 13 trillion and 500 billion yuan, 1.5 times that of GDP, and 4 trillion and 600 billion yuan more. In 2009, the total amount of GDP in China was 33 trillion and 500 billion yuan, and the broad money supply was 60 trillion and 600 billion yuan, which was 1.8 times that of GDP and 27 trillion and 100 billion yuan more than the difference.

From the current trend, the ratio between broad money supply and GDP is further increasing.

According to the central bank data, at the end of 9 this year, the broad money balance has reached 69 trillion and 640 billion yuan, according to the GDP three yuan issued by the National Bureau of statistics in the first three quarters, the super currency is nearly 42 trillion and 774 billion yuan.

Lack of independence of the central bank?

Some scholars believe that in recent years, the biggest cause of excessive currency is the worry of deflation brought to China after the outbreak of the financial crisis.

In December 2008, when he was interviewed by China Economic Weekly in Shanghai, Fang Gang, an economist from the central bank's monetary policy committee, hinted: "when the central bank grasps the right to issue currency, it is not easy to have deflation."

This means that after the economic crisis, the central bank's monetary policy committee has the idea of holding up economic growth through excessive monetary issuance.

Thus, in December 2008, the central economic work conference decided that the goal of "broad money supply growth by about 17%" was eventually increased by 27.7% percentage points, representing a growth rate of 27.7%.

Some scholars believe that it is the central bank's "extremely loose" monetary policy in the past 30 years (especially in the last 10 years) the central bank "actively" push the currency over the situation to the extreme.

When explaining the reasons, Wu Xiaoling told China Economic Weekly: "over the past years, the situation of excessive currency development has been a problem of central bank regulation. On the one hand, the central bank itself has a mature process, and the technology of regulation and control has matured gradually.

On the other hand, China's central bank operation independence needs to be improved.

But Wu Xiaoling also said that China's central bank can not be independent when specifying monetary policy.

"The Central Bank of China is a member of the cabinet, and if it is more independent in operation, I think the regulation may be better."

Although Wu Xiaoling believes that over the past 30 years, a considerable amount of money has been absorbed in the market by new commodities (resources, land and so on), she still can not accept that the ultra high money supply currently implemented by the central bank is "reasonable" and "reasonable".

Wu Xiaoling suggested that if the Chinese government lowered the growth rate of GDP during the "12th Five-Year plan" period to 7.5% to 8%, and the CPI control target in the next few years was raised to 4%, then the broad money growth rate in the next few years should be controlled at 13% to 14% to cope with the flood of liquidity.

From the perspective of monetary policy of the central bank in the next two years, it is imperative to tighten the money supply growth step by step and digest too much money supply.

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How to digest excess currency

How to digest excess money? This is a very complicated and difficult problem.

With the progress of RMB internationalization, RMB will become the reserve currency of all countries from the settlement currency of cross-border trade settlement in the long development process. If so, in the long run, is there no need to worry about the way out of excess RMB?

Prior to that, Xia Bin, member of the central bank monetary policy committee and director of the Financial Research Institute of the State Council Development Research Center, had worried that the internationalization of the RMB would have an impact on the size of the central bank's control of domestic credit.

He told China Economic Weekly: "the increase in foreign yuan will affect the central bank's regulation of broad money and test the ability of the central bank to regulate and control."

But in the short term, it is neither realistic nor feasible to internationalize the RMB to solve the problem of excessive currency.

Wu Xiaoling told China Economic Weekly that the sovereign money of a country must be based on the domestic inflation target and the money supply should be controlled by promoting economic growth.

It is difficult to measure or regulate the money supply if we want to join the international circulation factor.

Zhou Qiren admitted in his blog that, according to the early experience of China's reform, "more water plus more", a more reasonable policy combination should seem to be: mobilizing more resources to enter the market to digest the ever growing currencies, or slowing down the pace of market reform, but we must strictly control the excessive growth of the currency.

"The worst combination is to allow money to be passive and to be overcautious in terms of market reform."

Zhou Qiren wrote.