Reforms in China’s Monetary Policy Reforms in China’s Monetary

22
●
Reforms in China’s Monetary Policy
Although the balance sheet in Step 1 is logically correct, this chapter will 
explain later that it is not what happens in practice. Problems appear in Bank 
A’s balance sheet in Step 2. According to the accounting entry in practice, 
Bank A’s balance sheet in Step 2 should be:
When Bank A makes a loan of 80 yuan, the 80 yuan deposit money is 
created immediately. Then Bank A will deposit 16 yuan from the original 
80 yuan cash in the central bank as required reserves in to meet the 20 per-
cent reserve requirement. If the client buys goods after receiving the loan, 
the balance sheets of Bank A and Bank B will also change, but such changes 
will have nothing to do with the money creation theory in this chapter. This 
chapter points out that money creation does not involve the first step of the 
conventional money theory, namely, Table 1.1 , nor the economic transac-
tions after Table 1.4 (no matter how many goods the client would buy after 
receiving the loan). It only includes the lending activity in Table 1.4 . Money 
creation is banks’ lending activity . If a client withdraws 80 yuan to buy goods 
from another client who has opened an account in Bank C, according to the 
theory discussed in this chapter, the balance sheets will look like Table 1.2
and Table 1.3 , but this has nothing to do with the money creation process. 
The essential difference between the conventional money theory and what 
is presented in this chapter is: 
1. Different understanding of the principles of the money creation 
theory. 
The conventional money theory is based on the idea of extending loans 
with the excess reserves. This means banks extend loans with deposits, which 
Table 1.3
Balance sheet of bank B 
Assets
Liabilities
Cash 64 yuan
Deposits 80 yuan
Required Reserves 16 yuan
Table 1.4
Balance sheet of bank A 
Assets
Liabilities
Loan 80 yuan
Deposits 100 + 80 = 180 yuan
Required Reserves 36 yuan
Cash 64 yuan

Monetary Theory
●
23
is the basic idea of commodity money system. This chapter maintains that 
the nature of money creation is the exchange of credit claim (or the creditor’s 
right), and the nature of bank loans is the exchange of credit claim between 
banks and their clients, which is also an exchange of credit. In this case both 

tải về 1.53 Mb.

Chia sẻ với bạn bè của bạn: