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China needs cash money

13 January 2011 15:46 (UTC +04:00)

Baku - APA-Economics. The People’s Bank of China (PBoC), the country’s central bank, has increased yuan circulation by 80% in the past five years by improving printing capacity and prolonging production hours, FinanceAsia reported.
Still, it fails to meet the fast-growing demand for wallet-ready bills, the PBoC said in a note on its website.
China had Rmb2.4 trillion ($363 billion) worth of cash notes in the market, excluding bank deposits, in late 2005. By November last year, the circulation had jumped to Rmb 4.23 trillion. It may seem like a big increase, but the demand for cash notes has grown at an even higher rate of 20% per year during the same period, the bank said.
Beijing has made an effort to tame rising consumer prices and curb excessive liquidity in the market after the country’s inflation rose to 5.1% in November from 4.4% in October last year, well above the central bank’s tolerance level of 3%. The central bank announced a rate hike on Christmas Day for the second time in less than three months, saying it would lift the lending rate by 25 basis points to 5.81%. More rate hikes are widely expected as the current benchmark rate is merely 0.7 percentage points higher than the inflation rate.
The government has also announced plans to set price caps and ordered companies to lower selling prices for the sake of the national interest, and has told banks to limit the amount of new loans. But analysts predict new loans will amount to around Rmb7.5 trillion in 2011. That suggests the PBoC still needs to print more money.