Reforms in China’s Monetary Policy Reforms in China’s Monetary
IV. The Influence of Old-Style Private Banks
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| IV. The Influence of Old-Style Private Banks
Under the commodity money system (mainly gold in Western world and sil- ver in China), the credit institutions was the old-style private banks. The dif- ference between banks and old-style private banks lies in that money (gold) in the commodity-monetary era is an asset to old-style private banks, while money (deposit) in the credit-monetary era is a liability of banks. This differ- ence has a significant consequence: loans by old-style private banks increase loan assets and reduce monetary assets, while bank loans increase loan assets and reduce monetary liabilities. In this process, the total assets of old-style private banks remain unchanged while the total assets of banks increase, that is to say, banks can create assets, while old-style private banks cannot. As a result, from the view of traditional theorists, as old-style private banks could only grant no more than loans of 100 ounces of gold with deposits of 100 ounces of gold, banks can only grant no more than RMB100 of loan with RMB100 of deposits, which means deposit expansion can only be real- ized by transferring deposits to other banks. In fact, a bank can grant loans in excess of its deposits or reserves in a lump sum, realizing deposit expansion of the bank system in the traditional theory in an instant. In other words, if the required deposit reserve ratio is 20 percent and a bank holds excess reserves of RMB100, the bank can grant a lump-sum loan of RMB500. The RMB500 loan corresponds to RMB500 deposit created simultaneously (not before or after, but simultaneously without any delay), which will balance out itself. By then, the bank has RMB500 deposit liabilities and is required to hold RMB100 required reserves; the bank then converts RMB100 excess reserve assets into RMB 100 required reserve assets. These activities include two steps: one is that bank loans create deposits and increase assets and liabilities, and a balance is maintained, and the second is that the bank pays required reserves with excess reserves, with one entry of asset increase and Monetary Theory ● 15 another entry of asset reduction, which also strikes a balance. It is important that the two steps should be independent of each other. As long as the excess reserves held by the bank can support the bank to pay required reserves from the deposits created by bank loans, the bank can grant any number of lump-sum loans as it wishes, completely free from any restriction on the excess reserves held, irrelevant to current deposits, let alone the restriction of deposits. Before the global financial crisis in 2008, large banks in the United States, such as Citibank, only held several hundreds of millions of excess reserves, which did not prevent it from issuing several billions of loans in total. At present, China’s commercial banks collectively hold only RMB 1 trillion of excess reserves, but the loans granted in a quarter are far more than excess reserves. Commercial banks only will consider whether excess reserves are sufficient at the time of calculating new required reserves according to new balance of deposits in each ten-day interval. In this sense, the control over banking liquidity in bank credit is to a large extent dependent on the traditional theoretical concepts of the manage- ment of commercial banks, that is, they consider bank operations similar to old-style private banks, in which banks grant loans with excess reserves and recover loans to raise excess reserves. In fact, the recovery of loans does not equally increase excess reserves, simply because the simultaneously reduced deposits may make reserves available at the amount multiplied by recovered loans and required reserves. If the required reserve ratio and cash withdrawal rate are both relatively low, while the interbank market is highly developed (this is the case in developed countries), the impact of excess reserves on bank credit would be minimal. In the commodity-monetary era, after the public borrowed gold from old-style private banks, the use of gold became irrelevant to bank balance sheets; while in the credit monetary era, after the public acquires deposits with loans, the use of deposits will directly influence bank balance sheets. The conversion of deposits into deposits and cash in other banks is bound to reduce an equal amount of base money in this bank. By contrast, movement in the opposite direction means that banks will increase base money at an equal amount. As for a single bank, the interbank deposit transfer and mutual conversion of deposits and cash (as for banks on the whole, there is only conversion between deposits and cash) directly affect the base point of bank operations—base money. In order to increase base money, a bank must compete with other banks for deposits or absorb cash back into the bank; however, except raising deposit interest rates of all banks, the former does not attribute any meaning because it has no impact on total reserves while the latter is only an imagination because cash held by the pub- lic is constantly growing and cash withdrawn by customers from banks is far more than cash deposits in banks. 16 ● Reforms in China’s Monetary Policy In regard to the financial operation mechanism in the credit monetary system, I had once wished to only elaborate on the new theory. In the sum- mary of the “Research on the Transmission Mechanism of China’s Monetary Policy” (1995), I put forward that “[c]ompared with commenting on the con- ventional theory, it is obviously more meaningful to establish a new frame- work, this paper mainly focuses on the discussion of the new system while touches on the criticism about the traditional money theory in the relevant section of this paper.” However, deeply impressed by the strong influence of the conventional theory, it is impossible not to comment on the conventional theory as I was restructuring the foundation of the money and banking the- ory. When I was writing the “Money Creation and Bank Operations in the Credit Monetary System” (2001), to avoid the use of simple language, which may be thought to be insufficiently serious, I have to make comments on the main arguments of the traditional theory and make detailed comparison with the arguments of the new money and banking theory. In these writings, I constantly feel the intricacy of the ideological roots of the conventional money and banking theory and the difficulty of getting rid of the old notions and further recognize that to carry out reform from the root, other than mak- ing a painstaking analysis of the ideological roots of the traditional theory, elaboration of the logics of the new money and banking theory are required to reveal the errors of the conventional theory. When I began writing a few lines of comments included in the “Money Creation and Bank Operations in the Credit Monetary System” in 1998, I finally crystallized this chapter through 13 years of ruminations and efforts. The ideas and methods included in the new money and banking theory are very simple. When I explained the new money and banking theory to Chinese students and American students who had never studied econom- ics and finance, all of them thought that it was not difficult to understand. Afterwards, when some concepts in the conventional money theory such as deposit derivation and circulation were mentioned, they thought that those concepts were ridiculous. Against this background, if the public start from here for the study of finance, it would be difficult not to accept the new theory. Here, let me quote a saying of Keynes—“The difficulty lies, not in the new ideas, but in escaping from the old ones.” tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
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