Monetary Reform

Abstract

Parallel to fiscal reforms, China’s monetary reforms started in the early 1980s, and picked up speed in the early 1990s. During the past two decades of monetary reform, China has converted the People’s Bank of China (PBC) into a central bank that formulates and implements monetary policies; established a state banking system that consists of four major specialized banks, three policy banks, and many commercial banks; created a large number of non bank financial institutions that conduct trust and investment services, securities underwriting and transactions, and insurance business. Over the past few years, the central bank has increasingly used indirect policy instruments to conduct macroeconomic management and, for the first time in history, successfully achieved soft landing of an overheated economy in 1994–5 by reducing the inflation rate (measured by the retail price index) from 22 per cent in 1994 to 6 per cent in 1996 and 1 percent in 1997 while keeping the economy growing at an annual average rate of 11 per cent.