Reanalysis of the Modern Quantity Theory of Money and Determinants of China's High Monetization —Also as a Discussion on Foreign Exchange Reform's Impacts on Monetization

Based on Miao Wenlong(2007) and the quantity theory of money,this paper analyzes the reasons for money disappearance and level of in China.Using the GARCH model,it also empirically analyzes the impacts of economic growth,foreign exchange reserve and bank rate on monetization in China.The research result demonstrates that both high monetization and low inflation exist in China,which means China has the phenomenon of money disappearance. It is caused by factors such as the high and stable economic growth rate,the low investment yield,and the low and stable inflation rate.Meanwhile,the increase in trade surplus and foreign direct investment,which led to the booming of foreign exchange reserve,has also boosted the money supply and improved the level of monetization.There is a stable and long lasting relationship among the currency,output and price level.The foreign exchange reform has decreased China's monetization rate to some degree and influenced the restraint of monetization. Although China has been faced with high pressure of inflation since July 2010,the phenomenon of money disappearance still exists in the long run.