Expansion Of The Transition Period "monetized Fiscal Deficits" View

2008 is the 30th anniversary of the economic reforms and open-door policies in China. Mary counties faced with the serious problem of insufficient finance capacity during the transition. However, Ronald I. McKinnon (1993) thought the balance of budget was the most important factor during the period.Russia experienced a difficult time when it underwent the transition from a planned economy to a market economy. On the other hand, the reform of China is always smoothly and fast. Some researches have showed that in Russia all the Russians have paid the reform cost. How reform cost has been paid in China? What is the relationship between the central bank and the finance department? How can we understand the restructuring of state-owned banks from the angle of the transition? Why the balance sheet of the central bank is expanding?In this thesis, these problems are analyzed in the frame of seigniorage; we will find the logic of these problems after analyzing the behavior of the central bank.1. Main content of this thesisThis thesis is divided into five chapters.Chapter one is divided into three parts altogether. The first part mainly studies the conception of seigniorage at the age of the metal coins and the age of credit currency. Recommending in detail and commenting briefly the different concepts of seigniorage and the relationship between the budget deficits seigniorage is the second part. The third part introduces mainly a series of questions correlated with seigniorage. Chapter two is discussing the relationship of the seigniorage and the monetization of budget deficits. At first, the thesis explores the function of government finance and the risk of government finance. In addition, the behavior of finance shifting its responsibility onto the central bank is also a problem, which deserves being taken seriously in the coordination of financial and monetary policies. In order to analyze the problem, the thesis explores the structure of the balance sheet of the central bank. Seigniorage can be recognized in the balance sheet of the central bank. It reflects the expanding of the balance sheet because of the finance shifting its responsibility.Chapter three concentrates on the deduction of the taxation mechanism of seigniorage through a perspective of money creation. Government revenue collected from seigniorage equal to the product of money base stock and the nominal rate without growth and monetization. If the growth and monetization were concluded, the tax rate of seigniorage would the sum of growth, the rate of monetization and the nominal rate. The policy of seigniorage is also related with the choosing of the system of exchange rate. Russia is a good example of these models. The chapter shows that seigniorage is an inducement of finance risk.Chapter four analyzes the transition of China. Chinese central government faced with the problem of insufficient finance capacity in these years. The success of China reform is owned to the rising reform cost being paid by finance or being transferred to state-owned banks. The central bank joins the restructuring of state-owned banks. The actual bank restructuring does not pay for all reform cost. It means Shifting finance responsibility onto the central bank and the seigniorage which the government has got. The deferred payment reflects on the balance sheet of the central bank, making the quality of asset and liability worse. The central bank is more fragile than ever before. We must know that there are some disadvantages of the behavior and the disadvantages may cause many bad effects which may affect the development of finance and economy. However, this also reflects the characteristic of the gradual reform. So, it must only be a transitional tool.The last chapter is the advice and conclusions of the thesis.