Reforms in China’s Monetary Policy Reforms in China’s Monetary
III. Examples of Errors in the Basic Concepts and Theories of the
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| III. Examples of Errors in the Basic Concepts and Theories of the
Conventional Money Theory (a) Wrongly assuming that the deposit-loan gap is the funds available to banks Economics and banking community usually see the deposit-loan gap as funds available to individual banks or the banking system and less the so-called other committed assets such as the reserves, the remaining portion is deemed as the real available funds. They also believe that “all commercial banks can only have “deposit-loan gap,” but cannot have the “loan-deposit gap,” because they have to extend loans after setting aside the required reserves and meet- ing the requirement of the loan-to-deposit ratio. This means the loans of commercial banks can only constitute a part of their deposits, and therefore the amount of deposits are always larger than that of loans (Hu, 2000). In early 1996, the deposit-loan gap began to emerge in China’s banking system and then increased substantially. By the end of 1999, the deposit-loan gap of China’s depository institutions was 918.01 billion yuan. (People’s Bank of China (PBC) Statistics Department, 2000). Economists generally believe that due to business downturn and credit factors, banks were cautious about extending loans, resulting in the fact that a large amount of deposits were not lent out. They considered that there were excessive financial resources available in the banking system (Macro-policy Research Group, Financial Development Research Institute, Shaanxi Finance College, 1999). In fact, the loan-to-deposit ratio in the banking system cannot reflect the availability of funds in the banking system. After banks have extended loans, deposits are transferred among banks, which finally result in the transfer of reserves. Therefore, the difference between deposits and loans and the loan- to-deposit ratio of an individual bank only reflect the bank’s ability to attract Monetary Theory ● 33 deposits and cannot reflect the fund availability of individual banks. Since deposits are liabilities, a great amount of deposits only means a large amount of liabilities, and banks need to hold more reserves. For banks, the only indicator that determines the fund availability is the amount of reserves. If we deduct the amount of loans (as assets) and the reserves (real funds available to banks) from deposits (as liabilities), we will not get the real amount of funds available as we have expected. Just imagine a simplified case: Assuming that banks’ only profit- able assets are loans. If a bank extends a 100-yuan loan, then a 100-yuan deposit will be generated at the same time. Customers withdraw part of this 100 yuan or transfer part of it to other banks, and the remaining deposits will fall below 100 yuan, whereas the bank loan is still 100 yuan. The loan-to-deposit ratio is above 100 percent. If the bank wants to lower the loan-to-deposit ratio, it needs to get deposits from other banks. However, this will simultaneously increase the loan-to-deposit ratio of other banks. Therefore, the loan-to-deposit ratio of all banks cannot all fall below 100 percent. Overall lending provided by banks as a whole = deposits + cash withdrawn by clients, and the loan-to-deposit ratio of banks as a whole only reflects the ratio by which deposits are converted into cash. This is the real and simple reason behind the so-called overlending of banks a few years ago. When banks buy the assets of their clients, the rela- tionship between deposits and loans in the banking system reflects how much deposits are created by loans and how much deposits are created from bank’s purchase of clients’ assets and the cash withdrawal ratio. Since 1994, the loan-deposit gap in the banking system has disappeared; instead there was the deposit-loan gap. The main reason for the deposit-loan gap is the settlement of foreign exchange by banks. In 1994–1996, banks settled a substantial amount of foreign exchange, and the central bank pur- chased a large amount of foreign exchange. From 1994 to 1996, the central bank had purchased an additional 700 billion yuan of foreign exchange and released the same amount of monetary base into circulation. Under the two- tier foreign exchange market system, large BOP surplus will substantially increase of commercial banks’ “deposits in PBC” (as assets) and the “deposits” (as liabilities), and this process involves no loans. Therefore, the deposit-loan gap continued to increase in the banking system. Since 1997, the inflow of foreign exchange slowed down but still maintained a certain pace of growth, which is reflected by the increase of the deposit-loan gap. tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
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