The Relationship Between Independence Of People’s Bank Of China And Inflation

Most countries in the world have set up Central Bank Institutions. It has become an indispensable part of modern finance system. It is very different between the Central Bank and government departments about the macroeconomic regulation.It is not through political management, but by adjusting economic variables, such as the money supply, interest rates, exchange rates and the size of credit, to achieve the purpose of regulating the economy. It is because this particular mode of operation that generating debate on the question of the independence of the Central Bank, and carring out a variety of institutional arrangements to enhance or diminish its independence. China has reformed the People’s Bank of China on the duties and structure since the early1980s. And the purpose of the reform is to enhance the independence of the People’s Bank of China.There is not a unified concept of central bank independence. Scholars at home and abroad also conducted a lot of research to solve this problem. The conclusion is vary, but the general framework has similarities. Measure of central bank independence is mainly of three types:GMT method, CWN method and LS method.China’s central bank has a history of nearly65years since1948when the People’s Bank of China was established. The development of the People’s Bank of China can be roughly divided into three stages. Before the1978, the People’s Bank of China can not be counted as a central bank. Because it is not only bear the responsibilities of managing the national financial work, but also operates a general commercial banking business. After the period from1978to1995, especially in1984seprating its commercial banking business, the People’s Bank of China officially became the country’s central bank."The People’s Bank of China Law" which was enacted in1995ensures the status of the People’s Bank of China. And after that China’s central banking system is more perfect. At the same time, through the analysis of the inflations since1984, I discusse the specific relationship of the inflations and the independence of the People’s Bank of China. Then take advantage of theb VAR method to analyze the relationship of the central bank independence and inflation, and conclude that the stronger the independence of the Central Bank of China, the more stable the currency.