The Changing Role of Money in China and Its Implications

Abstract

Economic development is highly correlated with financial sector development. But the emergence, development, and economic implications of different financial structures are not well understood. This paper analyzes the emergence and development of China's financial structure since the beginning of the economic reforms. By focusing on the functions of money, monetary policy, and financial intermediation, it argues that although agricultural and industrial reforms in the early 1980s have led to significant changes in the financial system, financial liberalization has progressed little since. The creation of new financial institutions and markets throughout the 1990s and the recent abandonment of some of the traditional administrative control instruments do not signify a systemic change as the underlying functions remain constrained.