Study On The Impact Of China's National Debt To Money Supply

The relation between treasury bonds and money supply has never been so conspicuous. What is the effect of national debt on money supply? How dose center bank make use of treasury bonds to adjust the money supply? How to give full play to the role of national debt to coordinate the fiscal and monetary policy? These questions are in urgent need to research. This paper will construct an unified analysis framework, including both treasury bonds and money supply. Based on the actual situation of China, this paper further studies the influence of the national debt to money supply and how to make use of national debt to coordinate the fiscal and monetary policy, and then puts forward some suggestions to promote the development of the Chinese national debt market, coordinate the fiscal and monetary policy and make sure the sustainable development of China's economy.At first, this paper attempts to build a unified national-debt-money theoretical model, which is a five-department closed economy model. Then basing on the theoretical model, analyzes the impact of national debt to money supply and to savings, consumption, investment and other economic variables.On the basis of theoretical analysis, researches the empirical impact of Chinese national debt to money supply thoroughly. The fourth chapter introduces the changes of China's national debt issuance, balance and trading, discusses the function of the national debt, and analyzes the impact of Chinese national debt to the fiscal operation and the financial system. The fifth chapter introduces the changes of the size of the money supply, explores the causes of China's high rate of money & finance, analyzes the structure of China's money supply and elucidates the lack of China's current money supply mechanism. The sixth chapter builds the money supply regression model including national debt variables, which is based on the Friedman-Schwartz model, Kagan model and Joe-Morton model. Then, do the unit root and co-integration tests. Finally make regression analysis with M2, M1 or money multiplier as the dependent variable. Through empirical studies we can find that China's national debt issuance and national debt balance has little effect on the money supply.In order to study the effect of national debt to the money supply comprehensively, this paper also researches the examples of the major economies in the world such as American, Japan and Euro-zone economies and summarizes several conclusions to offer reference for China.The chapter eight mainly discusses the appropriate scale of China's national debt and the necessity and feasibility to enlarge China's national debt scale. Firstly, establish a panel model using the data of major economies, such as China, American, Japan, Euro-zone economies, Great Britain and so on. The model shows that a small proportion of the national debt transfer into the high-powered money. So it is very weak that the national debt affect the money supply. Secondly, discusses the significance, necessity and feasibility of expanding the scale of national debt. Finally, estimates the expansion space of China's national debt scale. Our country's national debt scale is much lower than the world's major economies', so government debt has huge room to grow.This paper also discusses how to coordinate the fiscal and monetary policy through national debt. In order to resolve the existing problems, must give full play of the national debt for the coordination of the fiscal and monetary policy. The monetary policy should care for the development of the bond market. The issuance of national bonds should be taken as an optional way to regulate the money supply for the central bank. The trading of national bonds should be the main instrument of open market operations. The national debt should also play an important role in adjusting the market interest rate.The last chapter summarizes several conclusions and puts forward some policy suggestions. The Main conclusion:1)national debt is not the main cause of the money supply growth and Chinese government bonds have little effect on the money supply; 2)China's national debt scale does not match the degree of economic development; 3)the lack of Chinese national debt is the important reason for the incongruity of fiscal and monetary policy. At the same time put forward the following Suggestions:1)Expand the scale of national debt issue and reduce taxes and fees; 2)Improve the national debt market and increase the liquidity of the national debt; 3)Attach great importance to the coordination of fiscal and monetary policy by using national debt instrument; 4)Promote China's national debt internationalization to boost the internationalization of the RMB;5)Revise relevant laws and regulations to clarify the national debt function.