A Dissertation On Chinese Abnormal Monetization

Chinese abnormal monetization has been or is plaguing many theoretical researchers and policy makers. Many scholars tried to explain it from all angles, but the result is not satisfactory. On the one hand, it is because of the complexity of monetization itself; on the other hand, it is due to their lack of a theoretical framework guiding the factors on various aspects which promote the process of monetization. This doomed that they could not find the inherent evolving logic of Chinese abnormal monetization. After evaluating the relevant literature, the paper thinks the McKinnon's optimal monetization framework's real function is the determining on the level of monetization, and this framework contains an inner mechanism of monetization's evolution. Therefore, the framework itself is the logic space of the evolution of monetization.This paper found all four logics in McNamara's framework which may lead to "high" level of monetization, and then identified Chinese abnormal monetization's logic from them. This paper thinks Chinese abnormal monetization Originated from the Complementary promotion of China's "actual monetary balance's holding gains" curve and the banking system's "investment income" curve. However, the two parts' dominant driving force is not from the interest rate in traditional financial deepening theory, but from various endogenous uncertainty and the government intervention-financial surplus' institutional arrangements which generated from the process our country's institution disintegration and reconstruction. Thus the evolution of our country's monetization is not only advancing along the two curves, but also the changing of the curve itself. Actually, it is derived from the two curves' sharp shift to the right. In essence, the factors of the two aspects are generated from the strengthening of economic catching-up. At the same time, in order to control the financial surplus, the government must give subsidies to the banking system, so some costs of the banking system will be extracted. Thus the level of monetization will be further improved. It is considered that the extent of increase from the subsidies must be limited through logical reference. It can only be the marginal logic of the monetization.The process of monetization is an objective historical inevitability; it must have profound influence on the entire economy. And as logic of the non-traditional monetization model, the abnormal logic of monetization must have a special influence on economy. The two bits of factors of driving the two curves in McNamara framework- are relatively independent. Therefore, the process of the monetization couldn't generate a single controllable variable just as interest rate. Thus, the weak effectiveness of monetary policy must appear in the process of China's monetization. Based on the same mentality, China's banking system must generate much deposit or lending variance and thus leading to great welfare losses.Based on the above reasoning, if the adverse effects of the abnormal monetization want to be eliminated, the logic of evolution must be modified. And make the monetization process can generate a single variable that can comprehensively reflect the factors of every aspect. So, from this angle, the marketization of interest rate is the inevitable choice.