Study And Empirical Analysis On The Impact Of Electronic Money Upon China’s Monetary Multiplier

The history of currency has experienced different stages of development, such as physical currency, metal currency, alternative currency, banknotes and so on. With the rapid development of information technology and the endless stream of financial innovation in the 20th century, a variety of electronic currency came into being. Human society is undergoing the critical transition period from the traditional currency to electronic money. In the process of changing people’s life styles and payment habits, giving rise to new feelings and convenience, electronic money also bring some challenges to traditional financial theory.With the rapid development and expanded impact of electronic money, the central bank will face many problems in new context, such as money supply, financial regulation and supervision work. Full-depth studies and comprehensive researches on electronic currency have become the important issues for central banks and academics in common concern. In the background of finance network booming, the study of the effects on which the central bank’s monetary implementation policy impacted by electronic currency is very necessary. Researches on the money multiplier have always been an important part of the effects of monetary policy. Therefore, the study of electronic money on China’s monetary multiplier effect of this issue has important theoretical value and practical significance.This paper combines theoretical research and empirical research method, analyses the effects on China’s monetary multiplier caused by the development of electronic money. In the theoretical analysis, the author regards electronic money as an important factor which has caused the changes of China’s currency multiplier, and introduces this factor to a traditional money multiplier model. After systematically studies the effects which electronic money impact on currency-deposit ratio, the statutory deposit reserve ratio, the excess reserve rate, the time deposits ratio and other factors, the paper reveals that the development of electronic money has increased China’s narrow money multiplier m1 and broad money multiplier m2. In the empirical analysis, through variables analysis, data collection, co-integration test and other methods, the writer establishes e-money related to narrow money multiplier and broad money multiplier’s long-term and short-term equilibrium model. Proves the verification of the amplification effects on China’s monetary multiplier which influenced by electronic currency.Full-text is divided into five parts:The first chapter is the Introduction. Firstly, the writer proposes the research background, significance and literature review of this thesis. Secondly, the writer describes the research purposes, methods and innovations of this paper. Finally, the chapter introduces the structural framework of this article. Literature review is the focus of this chapter. Based on the purpose of the research, the writer collects a large number of domestic and international literatures which are mainly about electronic money, money multiplier and the relationship between them and so on.The second chapter is an overview on relevant theories of electronic money, which is a basis of the full text. This chapter focuses on the emergence, definitions, characteristics and classification of electronic money. When giving the definition of electronic money, the writer first makes a literature review which is about the definition of electronic money, and then the writer gives the definition of electric money. Secondly, the writer gives a classification of electronic money which is according to the object and purpose of the research. Accordance with the different distribution committee, the paper classifies electronic currency at China’s present stage, and defines the main object of studies in electronic currency as substitutes for cash and demand deposits, which issued by financial institutions. Finally, the writer introduces the status quo of the development of bank card industries, which represents the development of e-money status.The third chapter is the theoretical research about effects of electronic currency on China’s monetary multiplier. This chapter is an important part of this paper. Firstly, the writer researches the needs of e-money as a starting point. The introduction of the "Business-Consumer e-money payment" game model describes the results that the uses of electronic money can effectively reduce transaction costs and maximize their own utility separately. Secondly, the author analyzes traditional money multiplier formula m=M/B, the basic research of effects of electronic money on monetary multiplier. This section discusses the effects mainly from two points of view, as follows:The first point of view, through the deformation and variables refinement for the traditional money multiplier formula, the writer focus on the major factors which decide money multiplier, such as the currency-deposit ratio k, the total reserve ratio r (including the statutory deposit reserve ratio rd and the excess reserve ratio re) and the time deposits ratio t. Then, the author studies how the electronic money development impact on the k, rd, re, t, thus impact the money multiplier, which proves the development of electronic money has increased China’s narrow money multiplier m1 and broad money multiplier m2.The second point of view, the writer views electronic money as a substitute for cash and demand deposits, which introduced into the traditional money multiplier formula as one of the variables. Through solving the partial derivative of money multiplier function, the author studies the e-money alternative effect to cash and deposits make the money multiplier higher continuously.ChapterⅣis the process of empirical analysis, this is also a central element of this article. First of all, the author selects the model variables based on research objectives and the theoretical results of the third chapter, and makes explanation for the selection of variables to be resolved. Secondly, the writer collects and collates data of the variables needed. The sample data selected is the latest statistics (as of the second quarter of 2009), using statistical software tools Eviews5.1. Thirdly, the writer tests each variable series data of the model with ADF unit root test to verify the sequence more stable, and to prevent a "spurious regression". Fourthly, the author uses the Johansen estimation method of co-integration test to determine the long-term correlation between the e-money and our country’s money multiplier, obtains the co-integration equation. Fifthly, the article establishes a regression based on self-vector error correction model to study the short-term impacts of the relationship between variables. Finally, the author summarizes and analyzes the empirical research findings, which verify the conclusions of the third chapter.Chapter V presents conclusions and recommendation policies. This chapter is a summary of the full text.The innovations of this thesis:Firstly, when giving the definition of electronic money, the writer first makes a literature review which is about the definition of electronic money, and then gives the definition of electric money. Secondly, the introduction of the "Business-Consumer E-money payment" game model describes the results that the uses of electronic money can effectively reduce transaction costs and maximize their own utility separately. Thirdly, when study the impact of China’s monetary multiplier upon electronic currency, the writer uses both qualitative and quantitative analysis methodes. In the empirical analysis, The sample data selected is the latest statistics (as of the second quarter of 2009).