China’s Choice Of Basic Rate In Money Market

As the development of world economic integration and finance innovations, our country began to implement the interest rate’s reform for market-oriented. The interest rate liberalization is a hot topic in our country, and our country viewed it as a gradual reform. Though we have got lots of good results in the process of interest rate liberalization, there still exist some problems. The biggest one of them is the lake of the basic interest rate in money market.Before 2007, our country have tried to cultivate Chibor as the basic interest rate in money market, but the result is not obvious for the internal defect.So in January4,2007, Shibor was published by the People’s bank in the purpose of culturing it as the basic interest rate in money market, the People’s bank also want it can smooth the monetary tramission. Now,Shibor have been running for over 4 years, there still exits lots of doubt in the market.The author dividend the paper in five parts:The first chapter provides the background of this paper, introduces the main purpose of this paper is to test whether Shibor can be the basic interest rate in money market. From the analysis, we can have some r recommended to cultivate it as the true basic interest rate. At last, the author pointed what are the advantages and disadvantage of this paper.The second chapter’s topic is about interest rate theories and interest rate liberalization. Illustrating the need of interest rate liberalization for our country, then introduces lessons from other countries’practices. At last points out lack of the basic interest rate in money market is the biggest problem for interest rate liberalization.The third chapter talks about basic interest rate in money market. From some basic interest rate(such as Libor、Euribor),we get 6 principles of choosing a basic rate:marketability、basic、stability、measurable、correlation、conductivity. And gives a brief introduce to Shibor at the last part of this chapter.The fourth chapter analysis Shibor in quantitative way. First, the author analysis Shibor with data’s from 2007-2011.Then the author compares it with other rates, and get the conclusion that Shibor is the best choice of the basic interest rate in money market. Then the author measures the stability of Shibor and correlation between Shibor with other rates.From the chapters above, we gets the conclusion that Shibor should be the benchmark interest rate of money market in China, but Shibor still have some disadvantages. So at the fifth chapter the author points out the weakness of Shibor, then puts forward some procedures in order to perfect it.The main conclusion is Shibor can be the best choice of the basic interest rate in money market. The short-term Shibor can conduct the monetary policy well, and it can make the market more activity. But the long-term Shibor didn’t practice well, it need more cultivation.The paper’s innovation is:(1) Emphasis the need of interest rate liberalization in a reasonable way;(2)Got 6 principles of choosing the basic rate;(3)Use a way combing quantitative analysis and qualitative analysis. But the paper still has lots of disadvantages; the author wants more study and help to perfect the analysis.