The Influence Of The Development Of China 's Money Market Fund On Money Supply

With the rapid growth of economy, the pace of financial innovation has been accelerated. Various products have being developed by financial institutions to meet the needs of the investors. The money market funds with low-risk, high liquidity and income stability are one of the most important financial products. This paper focuses on the impact of development on money market funds in the money supply.Firstly, I described the status of development of MMF in China through a comparative analysis with the MMF in US. I find that the macroeconomic background of the two current are similar which was in conditions of the beginning of the Interest rate marketization. They also have the similar development path which all experienced a dormant stage and then expand into the explosive expansion mode. The only difference is that the development of MMF in China is largely driven by internet finance. Secondly, I summed up the relationship between the development of MMF and interest rates, and make a further predict of the space for development in the future. I propose that there are common controversies of MMF in different countries, namely is whether to include statistical and whether it should pay the deposit reserve.This paper analyzes the impact of money supply through two perspectives. Theoretically, the deposits and cash substitution effect of MMF would blur the original hierarchy of currency supply and expand the money multiplier. It will also impact the efficiency of monetary policy by enhancing the efficiency of the interest pathway and increasing the difficulty of the control for the central bank to the monetary policy. Empirical, the impact of the MMF on M1 is not significant, but the impact on M2 is significantly, which deduced the deposits and cash substitution effect.Finally, this paper presents the following recommendations: The center bank should expand the scope of monetary policy and monetary statistical adjustment. We should use more innovative instruments of monetary policy to make a transition to the price-based regulation. And we should develop our currency market to improve the effectiveness of interest rate regulation.