The Study Of China's Monetary Transmission Mechanism

The validity of monetary policy depends on the efficiency of monetary transmission mechanism. The law on the function of money and finance, together with international experience, has proved that financial structure is the cornerstone of monetary transmission mechanism. Therefore the development of financial structure definitely stipulates the transformation of monetary transmission mechanism. China's financial structure is gradually changing from direct control to indirect management. In this stage, the intention of monetary policy cannot be successfully transmitted because of the defect in the monetary transmission mechanism. We should reconstruct the monetary transmission mechanism, making it be able to improve the validity of monetary policy at current stage and also be fit to the indirect financial management in the future. This needs two objective framework, one is in the near future and the other is in the long run. The key to the improvement of monetary transmission mechanism is to strengthen the fundamental institutions of financial market, which includes constructing a steady and efficient banking system, consummating money market, standardize and develop security market, realizing interest liberalization and improving exchange rate system.