Study On The Causes Of The Excess Money Supply And Its Influences In China

In order to ensure the smooth operation of our economy, money supply as an important intermediate target of monetary policy, played an invaluable role to maintain steady economic growth. In recent years, China has been adoptingaeasingmonetary policy because of complex world economic environment and the target of speeding up economic growth.As aconsequence, oversupply of money or excess liquidity happened inevitably. Since the year of 2004, China’s excess liquidity has been becoming more serious. Behind this arethe both impacts of domestic and foreign factors.For the foreign side, the monetary excess liquidity becamethe global prevalenceover the past few years. Western nations represented by the United States and Japancarried out long-term low interest rates or ultra-loose monetary policy topursue global economic recovery. Since the world financial crisis in 2008, the global economic has been in downturn. China is under enormous economic pressure of growth and employment.As a measure dealing with the effects of the crisis,China’s government started “the 4 trillion bailout plan” in 2008. In recent years the integrated use of open market operations such as facilitate the mid-lending(FML), heavy financial institutions deposit and some other financial instruments release a great amount of liquidity to the market. Meanwhile, to solve the financing difficulties of small and micro-enterprises, "three rural" districts and slum upgrading key areas of the national economy and weak links in the implementation of targeted repeatedly RRR reduce social financing costs. It has been a long-term increase in the money supply and led to the accumulation of liquidity year after year. It can be said that excess liquidity in China is long-standing defect represented by China’s economic structure and growth mechanism through conduction path of money supply.This paper describes the money supply mechanism and the history of relations between the money supply and economic performance. Through large amounts of data and charts, the paper makes a presentation and analysis of the excess liquidity in the economic performance of the past 10 years. The analysis includes the excess supply of currency, bank loan to deposit ratio declining, continued low money market rates, M1 and M2 gradually widening, the commercial banking system excess reserve high and so on. Then through ADS unit root test for the data collected and Granger causality test. Analysis of causality of money over and between economic performance. In this paper, the empirical basis to further explore the cause of the currency issued institutional reasons and economic reasons and Initial suggestions made money over the governance.