Excessive Money Research: A Hypothesis Of Finance Deepening Under Control

More and more facts & analyses indicate that the monetary supply speed is far more than the real economical increase and inflation rate in China, since the reform and opening-up policy was taken. Excessive money supply is a fact in China. Under the statistic of Fish Equation, the excessive money overhang of MO, Ml and M2 are 5.63%, 5.77% and 8.36%, in the period from 1978 to 2003. The long-term monetary overhang brings great challenges to economy and finance, such as financial risks centralizing to the banking system and inflation pressure accumulating constantly. Consequently, a deep research on excessive money is great significance both theoretically and practically.Based on the background of Chinese economy and finance reform, this paper penetrates through the superficial analysis on excessive money and makes a deep study on the mechanism, which conduces to excessive money supply and demand. The author points out that the internal mechanism of economy development and finance deepening is different from that of traditional theories in China. The financial deepening in China has her own features, which is a type of finance deepening under government control. In order to explain excessive money phenomenon, this paper puts forward the analysis framework of "hypothesis of finance deepening under control" and founds a broadened monetary quantity model,which comprises merchandise market, monetary market and capital market.The hypothesis of finance deepening under control indicates that the internal mechanism of monetary overhang is the special finance deepening process and the financial control by government in the transformation period. The route design and route leaning of economic reform featured by increment requires Chinese government to gather financial resource by financial control measures, for the sake of maintaining the output and employment of State-Own Enterprises, creating conditions for the quick development of private department, and bringing the financial risk under control. All these result in excessive money supply in the long haul.The demonstration analysis of the broadened monetary quantity model shows that the main cause of excessive money is the monetization process and the decline of transition currency, both of which incarnate the finance control by government, positively or passively. Econometric analysis shows that the Chinese data support the theory advanced in the paper.Based on the through study on financial control in the process of finance deepening and three argumentations, such as the efficiency of financial resource allocation, the costs and rewards of financial control, and the centralization of financial risk, the paper indicates that excessive money in China can not last out in the end. Because of the bi-directional restriction of financial risk and circumscription cost of financial property rights, financial control and excessive money will continue in the near future.Finance deepening under control facilitates economy development indirectly. It results in many negative effects because it is a second-best choice. Consequently, it is emergent to establish the benign mechanism between finance deepening and economy development. The most important measures are following: Firstly, to perfect the tax system and change the complexion of "weak revenues"; Secondly, to promote the reform of State-Own Enterprises strategically; Thirdly, to acceleratethe development of private enterprises and give them enough financial support; Finally, to deepen the reform of financial system and deal with the relationship between keeping financial risk away and maintaining financial efficiency properly.