Money shortage ?

2011-07-04  / Andy Xie Summary ------------- The so-called money shortage today reflects excessive money demand in the past, which was a result of very loose monetary policy. If the tightening policy is changed due to the pressure, the monetary condition would go back to the excessively loose state. As inflation is still unstable, i.e., product or service price could jump by 20-30% in one go, loosening monetary policy could trigger hyperinflation and social turmoils. There is a need to switch the tightening policy towards raising interest rate from just increasing bank deposit reserve ratio. The later only shifts interest rate increase into the gray market, which disproportionately burdens the SME sector. The current tightening approach protects local governments and SoEs that were...

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Posted in: monetary policy