The Feasibility Research Of Total Social Financing's Being The Intermediate Target Of Monetary Policy

The intermediate target of monetary policy is the medium variablebetween monetary policy and the final target of monetary policy, and also thelink connecting the monetary policy of the central bank and macro-economy.Generally, the intermediate target of monetary policy has three characters:mensurability, controllability, and relativity.The choice of the intermediatetarget is directly relating to final targets of monetary policy.In current western countries, interest rate, exchange rate, money supply,inflation targeting are mainly chosen. China's monetary policy had used towork through credit program for a long period. Along with the progress ofeconomy mechanism reform, the Central Bank has strengthened the macro-control of market instruments. In1998, the Central Bank cancelled the fifty-year's total loan scale limitation, from when on money supply, instead ofloan scale, formally became the intermediate target of China monetary policy.Such choice was then adaptable to China's economic environment and in thefollowing years China's economy witnessed good development, thegovernment effectively controlled inflation and successfully resisted theAsian financial crisis. However, China's economic and financial environments have witnessedgreat changes, which weakened the controllability of money supply. Theeconomics have been discussing the suitability of money supply as theintermediate target of monetary policy, and the proposition have got somenew development in2010.The Central Bank have raised the concept of "the total amount of socialfinancing" in the end of2010. In Feb2011, Sheng Songcheng, the director ofthe Investigation and Statistics Department of the People's Bank of China,has published an article that "The Connotation and Practical Meaning ofTotal social financing volume". The article explained the connotation of totalsocial financing volume and proposed to make is as China's intermediatetarget of monetary policy for the first time. Afterwards, the feasibility of thatproposition started to be warmly discussed in China's economic industry.There is a polarity between two opinions towards the proposition thattotal social financing as China's intermediate target of monetary policy, bothof which are based on qualitative analysis. This article will probe into thefeasibility of "total social financing volume as China's current intermediatetarget of monetary policy" based on qualitative analysis.We find out that "total social financing volume", as the intermediatetarget of monetary policy, has better mensurability and controllabilitycompared to money supply, but has weakness in relativity. We suggest thattotal social financing volume, under current environment, is necessary to betreated as a supplement of money supply, but not the only intermediate targetof monetary policy. The significance of using "total social financing volume"is to strengthen the mensurability and controllability of money supply. It is just a transition, while interest rate would be the final choice of China'sintermediate target of monetary policy.