| The economy began to going monetization since the currency borne to work as a general equivalent. With the gradual evolution of the currency, it experienced a change from commodity money, which had a real value, to credit money. Since then, the issuing of money broke away from the commodity, and especially after the collapse of the Bretton Woods System in 1973,that the non-convertible Paper Money Standard accepted by almost all the countries, the issuing of money was unbinding and the money supply determined by the monetary authorities.It's just because of the current credit monetary system which makes it especially important to research the economy monetization rate in our country. For one thing, how much money is necessary to ensure the natural economy successfully converted to money economy. For another, whether the monetary authorities issued excessive money for more seigniorage income and financial surplus.From a practical point of view, in recent years, the average monetization rate (M2/GDP) of the world is rising continuously, while the monetization rate of China rose rapidly after the economic Reform and Opening up. China's monetization rate reached 181% in 2009,which is far higher than all the western countries. Of course, it didn't mean that China had a higher level monetization than western countries. After the exceptionally high monetization rate, there may exist a lot of deep-seated problems within China's economy development. So what are the problems and what risk will the problems bring to China's economic reform. That's the purposes I wrote this paper.This paper based on the summarization of the monetization rate and its related concepts, theories and the measurement of monetization, then compared China's monetization process with other areas, especially compared China's monetization process with the USA and Japan. By taking use of the monetary theory analytical frame work and an empirical study, I meant to find out what influences will the Internationalization of Renminbi will take to China's monetization. At last, this paper hopes to give some useful advice after the discussing.The paper concluded 7 parts. Chapter one is an introduction which introduced the paper's research background and summarized the existent research of other economists. In chapter one I also introduced the research method, research ideas, the insufficient of this paper. Chapter two coordinate the concept of monetization related theories and measurement, prepared for the further research. Chapter three analyzed the process and characteristics of the economy monetization with comparison. Chapter four based on the comparison in previous chapter and tried to find out the reasons for China's high monetization rate. Chapter five is the empirical research about China's monetization trend and reasons, which tried to find out the empirical basis of the theoretical analysis. Chapter six is an expanded analysis, I hope to find out what influence will the Internationalization of Renminbi bring to China's monetization, and prepared for the further research. Chapter seven analyzed the influences if China's monetization rate and gave out some advices based on previous analysis.To think of the reason for China's high monetization rate, except for the money demanding on trading, storing, etc according to the Currency Supply and Demand Theory, it appeared mainly because there exists some defects in China's economy system.First, the financial system is needed to be mature.The immature of China's financial market performed in China's financial instruments which are lack of diversification and the underdeveloped financial market. Banks are still the mainly institutions for financing and the indirect financing is still the main way to get money. Because of the single financial instruments and the underdeveloped financial market, most of the financial asserts in China exists in the forms of bank savings. Only a small amount of the assets are stocks and bonds. That's why the quasi-money is at a high level in China, which resulting in a high M2 in China.Second, China's unique state-owned banking system is affected by the government.China's banking system established on the base of four state-owned commercial banks. So the government plays a special role in the banking system. For one thing, as the instruction of the government, the state-owned banks put a large number of loans into the inefficiency state-owned enterprises, increasing the proportion of bad loans. In this case, to keep the economic growth, the banks had to provide new loans, which lead to the expansion of M2 and naturally a high monetization rate. For another, the government needs to attract a lot of savings through"explicit subsidies"and"implicit guarantee", which leads to a lot of financial surplus in the economic transition process. That's another reason for the high rate. Of course, due to the low efficiency of China's market, China's large savings have a trouble in converting into investments, the lower conversion rate result in that a lot of savings stay in the banking system instead of bringing the inflation. With the increasing monetization rate, to achieve a certain amount of economic growth, it needs more money supply.Third, Wealth gap between rich and poor is lager and the social security system is lost.China's gradual reform, which allowed some people get rich first, is a"efficiency first"strategy. This strategy played an extremely important role in the beginning of China's Reform and Opening up. But, with the deepening of the Reform, the strategy began to show its negative impact. The wealth gap of China began to be bigger. According to the Reports of the World Bank, the Gini coefficient of China had been reached 0.48 in 2007.The urban-rural gap, regional gap, industry gap had widened in different degrees, which China's social security system is far from being perfect in the degree of coverage and protection, which leads to high quasi-money in our country.Fourth, there exists endogenous money supply in China.The foreign exchange reserves increased in recent years because of the international balance of payment surplus. China's foreign exchange reserves reached 2.4 trillion in 2009.Because of China's system of exchange, the base money supply caused by the RMB counterpart of foreign exchange reserves increased a lot. Since 2000, the rate of the RMB counterpart of foreign exchange reserves in base money supply is bigger. After 2002, the pressure of RMB appreciation has grown increasingly apparent, in order to reduce exchange rate volatility, central bank entered foreign exchange market for transition, making China's foreign exchange reserves continue to increase. After the foreign exchange Reform in 2005, the rate of the RMB counterpart of foreign exchange reserves became the main form of base money in China, the central bank had to retrieve the base money caused by the RMB counterpart of foreign exchange reserves through retrieving a lot of re-lending to financial institutes, open-market operation, raising legal reserve rate, issuing central bank bills and other hedging measures. In 2009, the base money caused by the RMB counterpart of foreign exchange reserves reached 134.10% and the central bank can't hedge the base money caused by the RMB counterpart of foreign exchange reserves. So the endogenous money supply is also one of the reasons for China's high monetization rate. Because of all the factors mentioned above, China's monetization rate is much highly without inflation, which is called"the mystery of China". Although China is not hyperinflation, but sometimes the big amounts of savings caused by high monetization rate had a demand for chasing high benefits and the capital market is an ideal target. Therefore, China's capital market experienced a number of customary rocketing and plumping. Luckily, China's capital market is in a low level position of the entire financial system, so the rocketing and plumping of the capital market played a small impact on the economy. But it means there are still many aspects need to be improved in the course of economic system reform, so our country's monetization can covert from"quantity"to"quality", from money spreading to money deepening and lastly advance to the economy financing.
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