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Some Erroneous Views on China’s Currency and Monetary Policy during the Transitional Period(Special Issue No. 46. 2016)


By Fan Jianjun, Department of Macroeconomic Research, DRC

Research Report Special Issue No. 46, 2016 (Total 1521) 2016-12-6

Abstract: With regard to China’s currency and monetary policy, there remain some erroneous views to be clarified and these views are as follows. Some people think that China needs a simple and applicable analytical framework to guide the performance of monetary policy; some people do not have a clear understanding of credit currency and its function in macro economy; some people only have a limited understanding of the mechanism that monetary financial assets are derived through the transformation of savings into investment; there is an overestimation of China’s real money stock; some people take “social liability ratio” as the indicator to measure leverage ratio of the real economy; some people misread “the increase and decrease of interests” as adjustment to benchmark interest rates for savings and loans; some people hold a wrong view on “quantity regulation and control”, “price regulation and control”, and their pros and cons; some people mistake easy monetary policy for easy monetary environment of the real economy; the CPI index is inappropriate to be used for measuring inflation index in China; some people have misunderstandings relating to liquidity trap, malfunction of monetary policy transmission mechanism, and quantitative easing monetary policy; some people do not have a correct understanding of whether monetary policy should give consideration to price of the asset market; and some people believe that demand-side aggregate regulation and control and supply-side structural reform are mutually exclusive to each other.

Key words: monetary policy, credit currency, misunderstanding