Studies On The Economic Effect Of The Chinese Treasury Funds

Firstly, this article aimed to explore the real reason behind the rapid expansion oftreasury funds in China. Secondly,it analyzed the characteristics of treasury fundsfluctuation and its dynamic effects on monetary supply and the macro-economy, thencalculate and forecast the best level of treasury cash balance for now and in the future.Finally, On the premise of Ensuring the safety of Chinese treasury funds and reducingor eliminating adverse impact on monetary supply as well as the macro-economy asfar as possible, the article gave appropriate recommendations with respect to how toobtain investment income and improve the efficiency of treasury cash management.The main conclusions include:1、Chinese treasury cash management is in its early stage of development, thereare still a series of problems. Treasury funds is still excessively idle; the goal oftreasury funds balance has not be determined; daily cash flow forecasting mechanismhas not yet been established; mechanism and investment tool system are far fromperfect; the functions positioning between the Ministry of Finance and the CentralBank are yet to be straightened out. With combination of our own national situations,we need urgently to summarize and draw international beneficial experiences, inorder to enhance treasury cash management and further improve the operatingmechanism.2、Chinese treasury cash has features of high inventory, high volatility, whichmaintain a strong,short-term and positive effect on the macro economy. In the recentyears, Chinese treasury funds has been growing year by year, displaying thecharacteristics of high inventory, high volatility and monthly calendars. The treasuryfunds fluctuations affect the macro economy through two channels: the financialmultiplier and the monetary multiplier. The effect size is determined by the relative level of effect of financial multiplier and the money multiplier. Combinations offactors lead to the results that the fluctuations of treasury funds maintain strongshort-term positive effects on macro economy.3、Chinese modern treasury cash management with financial departments as itscore must establish cooperative mechanism with the central bank. Closely related tothe day-to-day activities of treasury cash management, government debt managementand financial revenue and expenditure management has become an important part ofthe modern public finance management. The development of treasury cashmanagement in the market economies confirms the important role of the financialdepartment in the treasury cash management. In practice, the negative impact broughtby the treasury funds fluctuations to the monetary policy and the macro economythough the money multiplier channel still can not be ignored and externalcoordination mechanisms needs to be established with the Central Bank.4、To set a target cash balance and forecast the daily cash flow are two necessarysteps to achieve efficient treasury funds management in China. To set the target cashbalance is a common practice of treasury cash management in the world. Althoughprediction periods differ, all focus on accurate prediction of daily cash flow. Theprediction accuracy as well as the length of the period are closely related to the factthat the financial department whether has a high level of budget implementationmanagement control level, and whether there is a fast and efficient treasury fundsmanagement information system and an electronic payment system.The policy suggestions include:1、To further deepen Treasury Single Accounts Reform in order to provide a basicsupport. All financial funds should be managed in treasury single account system,andopen the treasury cash management account. The standardized management ofrevenue collection and expenditure should continue to be strengthened. The treasuryconcentrated payment and the government procurement management should becombined organically, for improving the financial funds payment’s science, planning,standard and effectiveness.2、To further expand the scope of term deposits of treasury funds in commercial banks in order to reduce treasury funds balance. Chinese financial treasurymanagement system reform has made a great progress and great achievement.Because of economic environment restriction, institutional restraint and operationlimitations, Chinese treasury cash management is in its early stage of development.Currently, Chinese treasury funds balance is huge and the issue of fund-interestearning is very prominent. It is inevitable to choose term deposits in commercialbanks. The operating intensity and frequency should be further increased andimproved.3、To flexibly grasp operation time and frequency of the treasury funds andstrengthen the cooperation mechanism between financial policies and monetarypolicies. Firstly, we must focus on reasonable arrangements on budget revenuecollection and payment progress, consider the timing and size of national debtsissuance and debt service expenditures, and try to keep treasury cash flow stably andorderly. Secondly, we must grasp the time and frequency of the treasury fundsoperation moderately, and seek reasonable match between treasury cash managementand money market instruments. Thirdly, to improve consultation and coordinationmechanism between financial policy and monetary policy to achieve treasury cashbalance information sharing while avoid reverse effect on the monetary policyobjectives, so that the state treasury funds could fully play its role in maintaining astable macro-economy.4、To fully accumulate historical data, master quantitative analysis methods, toimprove treasury cash flow calculation and projections and determine the besttreasury cash balance. Accumulate fully historical data, master quantitative analysismethods, improve primary database system; establish revenue prediction mechanismunder financial department, taxation agency networking; further strengthenexpenditure planing management; and enhance professionals trainging in the area oftreasury cash management.5、To constantly improve all kinds of market operation tools. Establish scientificdecision-making mechanism of the treasury cash market operations with consideringthe requirements of the national macro-control policy objectives, the size of thedeficit and the financial market development. On the base of term deposits in commercial banks and repurchasing government bonds at this stage, improve themarket construction of short-term financing instruments including short-termgovernment bonds, short-term borrowed funds in the currency market etc.6、Treasury cash management reform can be divided into three stages to advancestep by step. Under the first stage, treasury cash balance should be dropped to2-3times of the calculated target balance in five years gradually, and term deposit is themain investment tool. Under the second stage, the treasury cash balance can befurther reduced to1.5-2times of the target balance, and the extra funds can be used tobuy back government bonds and repurchase treasury bonds.Under the third stage, toachieve the accurate prediction of the daily cash flow, and consider the establishmentof a mechanism to issue short-term bonds regularly and cash management bond whennecessary. At this stage, combined investment instruments of term deposit andmoneytary market tools should be taken.