Rethinking Of China’s M₂/GDP

The M2/GDP index is often used to measure a country’s level of economic monetization for international custom. According to the definition of the traditional economic monetization, the ratio of M2/GDP is generally less than1.But since China’s reforming and opening up, the ratio of M2/GDP is rising to break through the limit of1in only25years, now it has reached1.88. The growth trajectory of the M2/GDP index is not only in accordance with the economists’summary, but also not bringing a negative impaction expected. So some economists began to admit this reasonable result, the other part began to challenge the reliability of the M2/GDP index in measuring the level of a country’s economic monetization. At present, many explanations are matching with the highly M2/GDP index, mainly from the overall perspective, such as super currency, monetization process, the highly savings rate, but less attention to the deep-seated reason. Dose it reveal some un reasonable structure problem of the country behind the high M2/GDP index? Is there any potential risks if the ratio of M2/GDP continues rising? This is the core problem we should figure out.Due to the different process of economic monetization, foreign economists have less researching on this issue, and the domestic research is mainly before year2006. Recently there are few research which is aim at "the monetization puzzle", both by theoretical analysis or empirical ones, after all, its interpretation is still limited to fully explain this peculiar economical phenomenon. In this paper, based on the previous research, from the view of the differences between the region industry structures, we think that the industrial structure will influence the money demand, which will affect the level of the regional economic monetization. In the method of the research, empirical analysis will be added to prove the theory.In the empirical analysis of this paper, we mainly use the panel data model, according to the view of industry structure, data is a strongly time series of cross section data, so this paper chooses the panel data model. This paper selected the area of deposit balance of RMB of/GDP index instead of area M2/GDP indicators as explanatory variables, and selected the Clark industrial upgrading index, i.e. secondly-thirdly industry output value’s contribution degree as explanatory variables, and selected the seven day’s repo rate as the control variable to analyze the influence between the two. In order to explain the core issue of this paper, we use the output of the third industry contribution degree instead of the original variables empirical complementary to add empirical analysis.This paper is divided into five parts, the first chapter is the introduction, researching background, researching object, the research significance in theory and practice; the latest research results of domestic and foreign relevant of the M2/GDP ratio problem, the technical route and framework of this study, finally point out the innovation and deficiency of this paper. The second chapter is the related theories, mainly divided into two parts:the first part introduces the theory of economic and monetization theory, including monetary theory and financial deepening theory; the second part introduces the related theories of the industrial structure, including the Clark theorem, Kuznets the evolution law of the industrial structure. Summarized and reviewed these theories. The third chapter is the analysis of influence of regional industrial structure in China’s M2/GDP ratio. During the analysis of high monetary phenomenon in China, namely M2/GDP ratio basis and the status of industrial structure rising, the regional differences in the structure of industry of our country to M2/GDP ratio interpretation. The fourth chapter is the empirical analysis, by the ratio of each provinces RMB deposit balance of/GDP as an alternative to M2/GDP indices and provincial industrial structure with empirical test. We choose the year from2003to2012, during this time, selected31Chinese major provinces and municipality directly under the central government as a sample, second, third industry output value and contribution degree (Clark industrial upgrading index) changes of empirical research, in order to more fully explain the core issue of this paper, the empirical part uses the output of the third industry contribution degree substitution the original explanatory variables empirical complementary. The fifth chapter is the conclusion and policy recommendations. According to the empirical analysis of the previous chapter the conclusion of this paper, according to the conclusion and puts forward the corresponding policy recommendations, in order to show the theoretical and practical significance.According to the empirical results, combined with theory analysis, we draw the following conclusions:(1) The existence of status excessively high ratio of M2/GDP in China, and contains a large number of potential risks, monitoring the index of risk prevention should be in the process of upgrading the industrial structure.(2)China area has obvious regional characteristics rather than geographical characteristics. With the process of the industrial structure upgrading, monetization in different regions have different degrees of increase, countries in the region’s economic construction should not according to the geographical area make it rigidly uniform blindly, but should consider the characteristics of the industrial structure of the classification. According to the regulation, and guard against the potential risks of aggregation.(3) Along with the rise of third industry contribution, measure the degree of currency provinces and municipalities directly under the central government may decline. That is to increase the proportion of the third industry will ease our existing high monetization pressure.(4) The interest rate changes in the money for the provinces and municipalities directly under the central government of the index is a positive relationship between. A rise in interest rates will exacerbate the monetization degree.