Monetary Equilibrium and Disequilibrium

Abstract

This chapter serves as a link between the previous analysis and Chapter 6, which will discuss the possibility of controling — through econometric modelling — money in China. In Chapter 1 we reviewed the development of the banking systems of the RCPEs in the transitional period. Chapter 2 demonstrated that new problems were created while the old ones were being solved. Western financial theories justify the proposition of the crucial necessity of controlling banks and banking control (see Chapter 3). If the controls fail or are not implemented properly, the situation assessed in Chapter 4 could cause the reforms to falter or proceed in directions that are counterproductive. Overall these arguments give rise not only to policy implications, but also to some academic significance. The reforms are supported in order to introduce market mechanisms into the CPEs. While price and interest rate mechanisms should not be completely rejected in the RCPEs, the solutions to the disadvantages and the costs of decentralising the system must be examined.

The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government (John Maynard Keynes, 1936, p. 379).