The Change Of Social System And The Process Of China's Monetarization

The ratio between M2 and GDP, also called the ratio of monetarization, is first introduced by Renaldo McKinnon to measure the level of real growth of money supply in the country especially in developing countries. He pointed that the monetarization ratio is gradually growing, but this growth doesn't last for ever. If it reaches a fixed interval betweenl and 1.2, it will maintain this level.China's monetarization ration has reached 1.8, ranked 1st all over the world, and keeps on moving up. This strange phenomenon has attracted eyes of researchers in and oversea. This paper intends to provide a new perspective of understanding the high level of china's monetarization. It analyzes the problem of the high level using the complementary hypothesis and the optimization model of monetarization which were invented by Ronaldo McKinnon in 1973s. Because we are on the way of economic transformation, the monetarization in goods and capital field such as land and housing doesn't fully give a reasonable explanation of high level of money need. So we base on above-mentioned theories and conclude that enterprise's need for real capital leads to quasi-money need, and changeable social system makes resident's uncertainty more and more unpredictable, so that the utility of holding money is growing. The conclusion of this paper is that the high level of monetarization in our country combines closely with changing social system, so it is hard to say what best level is the ratio of monetarization from quantity angle. Of course, it is not easy to adjust monetary polices to change this situation. Reasonable measures should be taken by the government to improve government's reputation and lower uncertainty, correct the structure of financing and change the incentive to accumulate quasi-money for enterprises and residents.