By Fan Jianjun, Department of Macroeconomic Research, DRC

Research Report Special Issue No. 46, 2016 (Total 1521) 2016-12-6

Abstract: With regard to China’s currency and monetary policy, there remain some erroneous views to be clarified and these views are as follows. Some people think that China needs a simple and applicable analytical framework to guide the performance of monetary policy; some people do not have a clear understanding of credit currency and its function in macro economy; some people only have a limited understanding of the mechanism that monetary financial assets are derived through the transformation of savings into investment; there is an overestimation of China’s real money stock; some people take “social liability ratio” as the indicator to measure leverage ratio of the real economy; some people misread “the increase and decrease of interests” as adjustment to benchmark interest rates for savings and loans; some people hold a wrong view on “quantity regulation and control”, “price regulation and control”, and their pros and cons; some people mistake easy monetary policy for easy monetary environment of the real economy; the CPI index is inappropriate to be used for measuring inflation index in China; some people have misunderstandings relating to liquidity trap, malfunction of monetary policy transmission mechanism, and quantitative easing monetary policy; some people do not have a correct understanding of whether monetary policy should give consideration to price of the asset market; and some people believe that demand-side aggregate regulation and control and supply-side structural reform are mutually exclusive to each other.

Key words: monetary policy, credit currency, misunderstanding