Research On Macro - Liquidity Management

In the year of 2007, the subprime mortgage crisis which begun in the US evolved rapidly into a financial crisis sweeping the world, and so far the world economy is still stumbling along the road of development. This financial crisis, from theory to practice, has an enormous impact on monetary economics. Central banks and international financial organizations take the initiative to develop new ways of liquidity management in practice. Academics also begin to make revision and supplement to the framework of the former mainstream “New Wicksellianism”(Neoclassical Synthetism) and at the same time strive to improve the summary of and guidance to the practice of liquidity management under the new developing theoretical paradigm.In the background of financial innovation, this paper has further developed the theory of endogenous credit money of Post Keynesian and put forward that currency and finance are not only the veil of real economy, but a semi-closed system that connects with real economy which can operate independently. Meanwhile, compared with real economy, it is more likely to engender enormous fluctuations because of the financial frictions in the system. In other words, the probability of the financial crisis model incurring in the future in which the fluctuations in the financial field transmit into real economy will be much higher than the model in which fluctuations of real economy transmit into the financial field. As to the central bank, its future tasks include not only the regulation of the liquidity of real economy(financial stability) but also that of the liquidity of the financial field(financial stability). Therefore, the direction of the innovation and evolution of financial management system is the development of macro liquidity management framework as well as the regulation of price stability and financial stability.In order to provide ideas and framework of macro liquidity for financial management departments, the analysis in this paper proceeds six parts. The literature which study macro liquidity management are reviewed and summarized in the first part. The second part is the theoretical analysis of the circulation of macro liquidity based on the theory of endogenous money, which provides the foundation for financial management departments to construct macro liquidity management framework. The third part includes the construction of macro liquidity management framework of financial management departments based on theoretical analysis and the discussion of the main content of the framework and tools of macro liquidity management from five aspects, namely the daily management and trend management of liquidity in inter-bank market, macro-prudential management, liquidity risk management and international liquidity management. This fourth part summarizes and analyzes the main liquidity management frameworks of foreign central banks and the unconventional liquidity management measures adopted since the global financial crisis in 2007. The fifth part involves the analysis of the change of the People’s Bank of China’s liquidity management framework and tools since the reform and opening and the speculation on its future macro liquidity management. In the sixth part, opinions and suggestions are put forward on strengthening and improving the framework and tools of Chinese macro liquidity management on the basis of the theory and management framework of macro liquidity as well as historical experience at home and abroad.There are three innovative points in this paper. First of all, in theory, the paper abandons the mainstream frameworks of current monetary economic studies among college groups, utilizes the theory of endogenous credit money of Post-Keynesian to analyze the relationship of monetary, credit creation and social liquidity, clarifies the relation between money and credit, draws the conclusion that frictions in financial markets can lead to substitution effect of credit expansion and financial stability; further conclusion is put forward that there are disadvantaged in the two current liquidity frameworks when dealing with external shocks, namely regulating monetary base in order to control the amount of money(money stock), which is advocated by monetarism and regulating interest rate according to market liquidity demand, which is proposed by neoclassical paradigm. Secondly, in terms of normative, the theoretical framework of macro liquidity management is constructed. The macro liquidity management needs to be made up of three parts at least. The first part is the use of monetary policies to regulate monetary price-- interest rate(price management of inter-bank market) through the operation of inter-bank market in order to control money and regulate indirectly credit creation. The second part is choosing proper tools to manage the overall credit supply of financial system in the framework of macro-prudential management(aggregate credit management of financial system). The third part is the construction of liquidity supporting channels, which can avoid the spread and transmission of liquidity crisis of single financial institution into systemic liquidity crisis. Thirdly, in practice, this paper summarizes systemic the liquidity management system of main central banks abroad, reviews the change of the system and main tools of Chinese liquidity management, puts forward that Chinese future macro liquidity framework should be able to control short-term monetary price, credit and the aggregate credit of financial system, and further analyzes its transformation path as well as the issues such as the system preparations that are required in order to transform successfully, which has provided systemic solutions for the transformation of the People’s Bank of China’s management framework.There are there aspects of theoretical significance in this paper. Firstly, the paper has analyzed the disadvantages of the monetary, neoclassical credit theory and money theory on liquidity management and explicitly put forward that current framework of monetary policy management will incur the instability of financial system and enlarge the fluctuation range of economic system. Secondly, this thesis has developed the framework of theory of endogenous monetary, connected the activities of financial institutions including banks with the fluctuations of real economy, and put forward that financial management departments need to broaden horizons, not only managing the interest rate or the amount of money but regulating liquidity through the management of interest rate within the scientific and proper range of credit quantity. Thirdly, this thesis proposes the main range, content and tools of financial management departments to regulate the macro liquidity.This paper has great realistic significance. Firstly, it has provided a guiding framework for future macro financial management and an operative practice toolkit for the practice management of inter-bank market and the total quantity management of financial management. Secondly, the most important realistic significance is to provide guiding suggestions for the current reform of China’s financial management system. Two important tasks are confronted with China’s financial management framework. One is reform, namely the change from quantity management to price management. The other is development, namely satisfaction of China’s future financial innovation and development on the basis of the maintenance of price stability and financial stability. The macro liquidity management framework provided in this paper has offered feasible approaches for the deep reform and development of China’s financial system.