The Analysis Of China Shadow Banking’s Impact On Money Supply

After the global financial crisis in2008, the concept of "shadow banking" attracts people’s attention and is considered to be one of the main reasons evoking the crisis. In Europe, American and other developed countries, the shadow banking system refers to from loans to securitization, and packing, re-securitization and repurchase around the primary securities. Because of the enormous risk hidden in the shadow banking system, Chinese scholars begin to study the shadow banking system. However, there are a lot of differences in our country and the developed countries environment, so the derived shadow banking systems are very different and the object of this paper is Chinese shadow banking system. In China, the degree of financial innovation is low, so there is no shadow banking system of the internationally strict sense, and China shadow banking system in this paper mainly refers to the credit agency or credit business outside the traditional banking system. According to the data on the People’s Bank of China, the proportion of the RMB loans in the social financing scale declines from91.9%in2002to51.4%in2013, and it shows that the financing scale besides the traditional bank is rising in recent years and should be paied more attention.Money supply refers to the money stock supplied by a country that use to service for the social and economic operation in a certain point. China central bank uses the money supply as the monetary policy intermediary goal and use corresponding monetary policy to regulate the macro economy based on the money supply. Besides, money supply deeply affects the public’s investment and consumption decision. However, the scale of the shadow banking is swelling in recent years, providing credit to the social through various channels, which accelerates the capital turnover rate, releases a large amount of liquidity, but most of the money circulate out of the regulatory system, and it’s difficult to monitor its scale and flow direction, resulting in that the money supply can not accurately reflect market liquidity level. For example, ranging from November2009to September2011, influenced by national macroeconomic regulation and control, many enterprises cannot gain a loan from the traditional bank credit channel, and turn to the shadow banking system to finance, the growth rates of M2and new increased RMB loans both declines, but the CPI raise gradually. In this background, studying the reasons of the rapid development of shadow banking, its impact on the economic, its constitution and present situation, analyzing its influence on the money supply, which all have very important significance for clearly recognizing the shadow banking, improving validity of monetary policy intermediary target.Taking the China shadow banking as the research object, the paper firstly the definition, characteristics and the reasons of rapid development of the shadow banking and its impact on the economic, and emphatically introduces the composition of shadow banking in our country. Secondly, the paper analyzes the influence of shadow banking on the money supply in both theoretical analysis and empirical analysis. In theoretical analysis, the shadow banking does weakened the central bank’s ability to control the monetary base, enhance the capacity of the commercial bank’s credit supply, reduce the public preference on cash holding, provide lots of liquidity, speed up the velocity of circulation of funds, while most of the shadow banking capital circulate outside the traditional banking system, which leads to the money supply is difficult to accurately reflect market liquidity level, so all these factors reduce the effectiveness of money supply as the intermediary target of monetary policy. Empirical analysis, selecting the sum of trust and entrusted loans on behalf of the scale of shadow banking, this paper makes the two variables VAR model for the size of the shadow banking and new broad money supply. Then the paper draws the following conclusion by using the granger causality test, impulse response and variance decomposition analysis:first, the shadow banking size and new broad money supply are granger reasons for each other; second, after the impact of a standard deviation of the shadow banking, new broad money supply mainly responds negatively, which reflects the shadow banking capital mainly circulates outside the traditional commercial bank system, without being monitored, causing the decrease of the new broad money supply with the increase of the shadow banking size; third, the contribution of the shadow banking in explaining the new broad money supply changes increases, and a faster rise in short term, which means the changes of the shadow banking size have a larger influence on the money supply. Finally, the paper makes suggestions from strengthening regulation and improving the monetary policy intermediary goal:regulating the shadow banking based on classification and gradually establishing a shadow banking monitoring system; adjusting monetary statistics caliber with considering the influences of the shadow banking and setting up a intermediary target system with given priority to interest rates.