A Study On The Present Situation And The Cause Of The Excess Money In China

The "excess money" in China is an extended concept of "Chinese riddle" which was first mention by McKinnon in1993."Chinese riddle" represent the phenomenon that money supply growth greatly more than the sum of economic growth and inflation rate. Later scholars usually define this part of the "extra" money supply as "excess money". Since the concept of excess money is put forward, there derived some hypothesis that tried to give an analysis on the current situation and the cause of excess money in China. But there are still some problems didn’t get reasonable solutions. Firstly, the concept of excess money in China is not definitive and is different from person to person; Secondly, there isn’t a unified conclusion on the topic about whether there is excess money supply in China; Finally, about the causes of the excess money in China, although there are different hypothesis, but we don’t have a convincing result which combined theoretical analysis and empirical analysis in a proper way.Therefore, this paper classified different hypothesis through summarize different researches on this topic. Compared with historical experiences, by using quantitative analysis method, this paper carried on a detailed analysis on excess money problems in China. First of all, puts forward a precise definition of "excess money" in China, and then gives both theoretical analysis and empirical study on the topic of whether there is excess money in China. Finally summarize the main causes of the excess money and gives relevant suggestions on how to control and make use of the excess money reasonably. Hope this paper can provide useful reference to monetary policy.As a result, it can be confirmed that during the year1979-2010, there really exist excess money in China, and in some particular years, this excess monetary phenomenon is very significant. And the main causes of excess money are expansion of the capital market as well as the increasing of Chinese household savings balance. In view of Chinese capital market is immature, and is still in rapid development process, the absorption of extra money will still expand in a period of time in future. Chinese policy makers should properly guide the healthy development of financial market continues, encourages long-term investment behavior, prevent large amount of speculative capital which can bring abnormal impact to money supply. Gradually lead capital market fund into the real economy conduction, finally realizes the steady economic growth. To improve and perfect social welfare guarantee system is mostly urgent and necessary to solve the problem in our high household saving balance, and that can prevent a great quantity of useless money supply. Ultimately fulfill the effectiveness of monetary policy and the stability and sustainable of the economic growth.