Reforms in China’s Monetary Policy Reforms in China’s Monetary
I. People Are Willing to Accept and Adhere to Preconceived Ideas
tải về 1.53 Mb. Chế độ xem pdf
|
| I. People Are Willing to Accept and Adhere to Preconceived Ideas,
Even Though They Are Clearly Contrary to the Facts The power of preconceived ideas is enormous, especially those consistent with people’s intuition. When faced with any phenomenon contrary to such preconceived ideas, the first reaction that comes to mind would be to refuse to accept the reality. When I was a college student 20 years ago, my experience as an intern in the accounting department, Nangang Office, Harbin Branch of the Agricultural Bank of China almost overturned in an instant the theory of money cre- ation I had learned at classes. This department was divided into four sections: accounting, intracity operation, intrabank, and miscellaneous. To begin with, I was assigned to work in the accounting section, where my first task was to record entries of loans by filling in the bookkeeping voucher in accordance with a copy of a loan contract sent by the credit and loan department through a document conveyor (which is actually a hollow iron pipe), adding “RMB xxxxx” to the deposit account of the borrowing enterprise at Nangang Office of the Agricultural Bank of China. “Eh? Where is the money on loan?” I asked incredulously. “Isn’t it already recorded on the account?” a manager replied with a light and affirmative tone, and it wasn’t until then that I real- ized that I had finished a genuine transaction of money creation. The joy over this finding at Nangang Office far exceeded the subtle fun of ring finger counting learned during this period, which also at the same time aroused my suspicion over the theory of money creation. Currently, I still appreciate the thorough understanding and successful application of the theory of money creation by my colleagues at Nangang Office, while I become more confused by why thousands of bank employees do not cast doubt on the conventional money and banking theory in their daily bookkeeping of loan release and why there is no challenge to the wrong theory when the facts are apparently contrary to the conventional money and banking theory. The rejection of reality is the first reaction, even so for bank tellers engaged in the practice on a daily basis, while those researchers believing in the con- ventional money and banking theory not only simply refuse to accept the reality but also keep themselves occupied with patching existing ideas with circulation and derivative theory and even escape from the reality on the excuse that money creation is a highly abstract macrotheoretical model, not related to specific accounting analysis. The geocentric theory, for example, coincides with people’s intuitive feelings but is greatly impeded in explaining Monetary Theory ● 9 the running of the planet. In order to improve the geocentric theory, Ptolemy (90–160) refined the model. To explain the phenomenon of retrogradation of some planets (which means at some point in time the orbits of planets seen from the earth may run in the opposite direction), he proposed the theory of epicycles, that is, the planets are assumed to move in a small circle called an epicycle, which in turn moves along a larger circle called a deferent. As astronomical observations became more accurate, the system developed from the geocentric theory failed to fit actual observations. Astronomers therefore included additional epicycles to the existing system one after another, and at a later stage, astronomers had no idea of the number of epicycles each planet should have. In half a century after the publication of the De Revolutionibus Orbium Coelestium , the heliocentric theory had received little attention with few supporters and was ignored and misinterpreted even after Galileo had discovered new astronomical phenomenon in support of the heliocentric theory. It took many years before the geocentric theory was replaced by the heliocentric theory. I believe that the interpretation of the geocentric theory on the orbits of planets without boundary through the application of numer- ous epicycles more closely resembles the heliocentric theory, but is it mean- ingful to do so? The heliocentric theory could succinctly explain the orbits of planets with much higher forecasting precision than the geocentric theory, and the pivotal issue is that the earth is indeed moving around the sun, not vice versa. Although there may only be a fine line between truth and fallacy in terms of results, they are different in essence. Similar to epicycles in the geocentric theory, conventional money the- ory applies so-called multiple deposit creation theoryto explain the creation of money, but eventually no one can tell the number of times the money derived, and even the integration method is used for calculation. A question I read at the graduate school entrance test of the People’s Bank of China 18 years ago was that “a bank increases the original deposit by RMB10,000, if the required reserve ratio is 20 percent and the cash outflow rate is 10 per- cent, what is the maximum amount of deposit currency created by the bank- ing system in total?” My first reaction was to write down the long formula of circulation and derivation in accordance with the textbook standard, which undoubtedly would guarantee a full mark; after a while I felt that integra- tion was much simpler and changed to the integration formula, which was logically consistent with the formula of circulation and derivation, which I thought could earn me some marks. At the last moment before handing in the test paper, it suddenly occurred to me that it was not necessary to use such a complicated formula; the same result could be derived only by chang- ing all the reserves held by the bank to required reserves and withdrawing the reserves, which can be completed by a single bank on its own instantly. 10 ● Reforms in China’s Monetary Policy In other words, the volume of bank loans was not restrained by the quantity of reserves held, and the ultimate deposit in the banking system was the ultimate deposit of the bank, which can be done only by dividing its reserves by the sum of the required reserve rate and the withdrawal rate. After some hesitation, I changed to a simple equation R/(r+c). It was this question that triggered my complete suspicion over the conventional money and banking theory and prompted me to go on a journey that seeks to rebuild the theoreti- cal foundation of money and banking theory in my mind. In this process, I have acquired sufficient confidence toward the new money and banking theory, whereby money creation and banking operation can be expressed in a succinct way and put into practice, the key is loans create deposit, not vice versa. tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
|