A Study On Central Bank Independence Of China

Monetary policy has been one of two main macroeconomic policies to many governments. The independence of central bank, which constitutes and implements the monetary policy, has caught more and more attention, and especially since 80 years, the 20^th century there has been a trend of strengthening the central bank independence in the world. This trend has the profound practical and theoretical background. In the 1970s, the western developed capitalism countries suffered severe stagflation. Many economists argued on the Keynesianism theory, and realized the importance of the independence of monetary. Inflation bias represents the gap between the high practical inflation rate and the optimal inflation rate, and the theories of "Dynamic Time Inconsistency" and "Political Business Cycle" explained the mechanism of the inflation bias from different view points. "Conservative-central-banker Approach" and "Optimal-contract Approach" respectively proved that the institutional frame of independent central bank could eliminate or reduce inflation bias. With the impulse of the practical economy puzzle and academic research, many governments have been attaching importance to the central bank independence and have taken many measures to strengthen the independence of their central banks. However, the theories of central bank independence have been developing in the economic and social circumstance of the western countries, and the applicability in China is a little suspicious.This dissertation reviews the existing literature on the concept of Central Bank Independence (CBI), measures of CBI, the theories of CBI and empirical research, and on the base of these, the dissertation defines the concept of CBI innovatively, and that is the independence of central bank to various related interest parts when central bank constitutes and implements the monetary policy. This dissertation reviews the development and reform course of the People's Bank of China (PBC), analyzes the infection to the CBI of PBC, and summarizes the actuality of PBC's CBI. The analysis shows that the CBI has been rising since the reform of the PBC, but the level of CBI is still low. This dissertation analyzes the applicability of the CBI theories in China, and figures out that the conditions of the CBI theories don't exist in China and the applicability in China is a little suspicious. The CBI in China has its characters in the present economic and social circumstance and there are two points which worth while special research - (1) local governments intervene the branches of PBC for their political achievement; (2 ) the financial interest groups have influence on the practice of the monetary policy. For the first problem, the PBC has implemented the reform of branches, but these are many arguments on the effect of the reform. The dissertation provides an empirical evidence for the arguments, and the empirical study using the Chow-break-point test shows the reform hasn't significant effect on the CBI of PBC to local governments. For the second problem, capital injecting and loan providing are the main method of the PBC's financial stabilization policies, and furthermore the PBC has to be responsible for the money's returns. For this, there is a property-right relation between the central bank and the financial institutions, and there must be some losing of the PBC's independence. This paper constructs a micro-behavior model of central bank and financial institutions from property-rights view. By the analysis of theoretical model and the practice, we can draw the conclusions that in the frame of the present financial stabilization policies in China, the central bank's function of monetary policy is enslaved to financial institutions and central bank independence has been damaged.