Shanghai Net Cash To Put Appropriate Scale Study

Currency links all social economic activities, and cash, being the most essential payment intermediate and trading tool, represents the real purchasing power.'Inflation' arises when cash in circulation exceeds the normal cash demand; while inadequate cash injection can not meet the requirements of economic development, thus leading to'bank running'etc..Therefore, research on cash issues is of great importance.During recent years, RMB cash injection volume kept increasing in Shanghai,and the factors affecting Shanghai's cash circulation are also changing accordingly. Against the background of deteriorating impact of international financial crise and accelerating construction of'two centres', how to scientifically and precisely estimate the appropriate cash injection volume, and to fulfill the cash demand in Shanghai, is a crucial issue concerning directly the financial stability, economic development and social stability of Shanghai as well as the entire country.At present, the analysis abroad on cash issues is generally classified, and rarely available in public reading.However, the related native researches focus mainly on fundamental analysis or local scenarios, and has not included Shanghai so far. Therefore, the author analyses the general situation and features of Shanghai's cash operation from 1999 through 2008 based on present currency theory(in particular the theory of RMB cash demand), summarizes the major channels and factors of net cash injection in Shanghai and studies the link between main economic ingredients and appropriate net cash injection volume in Shanghai using VAR model.The article draws conclusions as follows:the VAR model fits the ongoing research on net cash injection in Shanghai; variables of cash itself are the key essential factors among all, cash demand for trading purpose remains the major part of net cash in circulation and external demand has a slight effect on it; interest rate does not play an important role in deciding the net cash injection volume in Shanghai.As the research reveals that the monthly data of Shanghai's net cash injection shows strong seasonal features in the past few years, the article also analyses the according time series using X-12-ARIMA software, designed by the People's Bank of China. The results shows the seasonal adjustments perform well and smooth the time series compared to the raw layout, because they eliminate the impact of irregular change. A smaller difference is obtained using ARIMA(011)(011)model between the estimated and real net injection, which means this model could be applied in Shanghai's net cash injection volume estimation. For the purpose of better research, the author also puts forward several recommendations:reinforce the current cash management system and assure the credibility of cash payments data; emphasize on monitoring the key economic indicators such as impact of monetary policies adjustments, the investment volume of fixed assets, household income etc.;concern particularly the regular seasonal changes of cash circulation, and monitor its status especially during major legal holidays.