Analysis of China’s Excessively High Level of M2/GDP from the Perspective of Currency Anti-substitution

Since the reform and opening up, China’s M2/GDP have raised and become a Chinese puzzle in the macroeconomic area. Even in 2007, when the flow of capital becomes faster, liquidity surplus, inflation increases and sustained economic overheating, M2/GDP is still as high as 1.6166, and this phenomenon conflicts with the previous conclusions. Based on currency anti-substitution perspective on China’s high M2/GDP abnormal analysis and empirical testing, research results show that: under the current foreign exchange management system, high foreign exchange reserves and the ineffective offsetting mechanism are the main causes leading to M2/GDP increase. Hence it is necessary to reform the existing foreign exchange management system and reduce the level of M2/GDP.