Question

what do you think are the most or least powerful venues for China's monetary transmission mechanism?why?

Answer 1

The transmission mechanisms of monetary policy may be defined as the channels, not mutually exclusive, through which the evolution of monetary aggregates affect, often after variable and not completely predictable intervals, the level of product and prices.

The four transmission mechanisms of monetary policies are:

1. Improving the Renminbi( RMB) exchange rate formation regime.

China’s economic and financial development and stability, market demand and supply will be given a fundamental role in RMB exchange rate regime formation. The foreign exchange management system will be speeded up by establishing and strengthening the market mechanism and management system for international payments so as to promote BOP equilibrium and support balanced and sustained growth of the overall economy.

2. Steadily advancing market-based interest rate reform.

By harmonizing the relationship among central bank policy interest rates, financial market rates and deposit and lending rates of commercial banks, encourage financial institutions to promote liquidity management capability, improve their sensitivity to macro management measures by the central bank, and gradually set up an interest rate transmission mechanism through which financial institutions price their loans with reference to market rates and market rates move in response to central bank benchmark rate adjustments.

3. Pushing forward the reform of state-owned commercial banks and rural credit cooperatives.

By promoting share-holding reform of state-owned commercial banks, and turn them into modern financial institutions with adequate capital, strict internal control, secure operation and good services and profitability. The rural financial services system will be improved by developing rural credit cooperatives into local financial institutions with a clearly established ownership structure, scientific management, strengthened disciplinary mechanism and financial sustainability, providing services to the rural economy on a commercial basis.

4. Promoting further financial market development.

By improve the existing financial products, standardize operational procedures for financial instruments, and increase the width and depth of the financial market through financial innovation. Developing direct financing, broaden linkages between the money market and the capital market, improve the efficiency of monetary policy transmission in the capital market, further promote the resource allocation function of the financial system and foster the formation of real capital price signals.