By Xia Bin　

Date: 2004/05/27

Abstract:

Based on an analysis of the non-effective transmission of the monetary policy over the past few years, the author cited some factors affecting the effective transmission role of the monetary policy in China: the increased aggregate of RMB counterpart of foreign exchange reserves, the restrictions of the present profit mode of the state-owned commercial banks, the pressure resulting from disposing the accumulated NPLs and institutional transformation, the imbalance of excess reserves by commercial banks as well as the inadequate development of the financial market.

According to the author, China should, in the medium and long run, speed up the financial reform and social security system drive, steadily and consistently push forward the marketization of interest rate and cleverly and gradually withdraw the liquidity formed by the market over the years. In the short run, China should abide by the market principles and implement the administrative policy of floating exchange rate with proper methods so as to enhance the initiative of the central bank in carrying out the monetary policy; further implement the moderate monetary policy with appropriate policy tools rendered by relevant departments of the central government.