An Empirical Study On The Velocity Of Money In China Based On The Payment System Data

The circulation of currency connects the real economy and the financial system. The velocity of money reflects the quality of economic operation and the situation of funding.At the same time, it is also an important parameter of the monetary policy, especially in a economic system where the money supply was referred as the intermediate target. The accurate estimation and master of the velocity of money is of great significance for the effectiveness of monetary policy.Theory of circulation of money has always been one of the key areas of the Western traditional monetary theory, different schools had developed its own circulation theories and perspectives of money, and created a varieties of formulas to calculate the velocity of money. Using the transaction equation to calculate the velocity is the consensus among economists, but under constraints of the condition, people can not put it into practice. At that time, income equation is a perfect substitution, and more convenient. A lot of economic organization use it as the standard method.With the development of science and economic, the income equation is weaker and weaker to tell the real velocity. It cannot explain the decrease of money velocity when the real velocity is thought to be increasing. So it’s time to reform and rebuilt the calculation of the velocity of money.As in China, despite the U-shaped curve theory of the change of velocity, China’s monetization process has already completed year ago, the increase of velocity should have taken place while the velocity comes from income equation shows the opposite side.To fix the departure between theory and the fact, many economists have donate efforts and attempts such as using the cycling rate of deposits or NOE to represent the transaction value. Whether the alternative indicators can perfectly deoxygenize the real total transaction or not is the key point in amending. In this paper, based on the deep observation of the payment system, I proposed to use the data from the payment system to calculate the velocity. This method not only reflects the real velocity but also confirm the increase of the velocity of money.After the definition of the new calculation of money velocity, this paper continues to explore the factors that affect the velocity of money with both theoretical and empirical study. The outcome shows that the expansion of virtual economics, the development GDP and the improvement of the payment system contribute to the speed-up of the velocity of money. But surprisingly, the real interest shows tinny affect to the velocity, inconsistent with the theoretical.This paper provides a new perspective from payment system to study the circulation of money. What’s more, this new perspective can also help study many other aspect of the economic system, Such as the choice of the intermediate objectives of monetary policy, the transmission mechanism monetary policy and so on. So in future study, scholars should pay more attention to use the data from the payment system to see through the "veil" covered upon the economics.