High velocity helps channel funds into real economy

Updated: 2013-07-08 10:04

(Xinhua)

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HANGZHOU - The Chinese government's ongoing efforts to increase the velocity of money will help channel capital into the real economy and spur growth, experts attending the 5th China International Assets Management Conference have said.

Gregory L Morris, chairman of the Investment Committee for Stadion Money Management, said at the forum that the velocity of the money supply is a much more important element to measure than the actual money supply itself.

The velocity of money refers to how many times money has changed hands in generating new money. A high velocity of money is usually considered good, as that means money put into the system is used over and over again.

Bi Jiyao, head of the International Economics Institute under China's National Development and Reform Commission (NDRC), said enhancing the velocity will increase financial support to the real economy and boost China's economic growth.

On Friday, the China Banking Regulatory Commission (CBRC) announced ten measures to increase the velocity of money, targeting foreign exchange reserves, private capital and bank loans, among others.

China's total social financing surged 50.2 percent to 9.11 trillion yuan ($1.483 trillion) during the first five months, prompting concerns about an excessive money supply and financial risks. The government has recently reiterated that it will stick to a prudent monetary policy while trying to improve efficiency in the use of funds.

According to the CBRC's new measures, China will use more funds from foreign exchange reserves as credit loans to firms and support these companies' moves to go global.

Tan Yaling, head of the China Forex Investment Research Institute, said the move will help increase the velocity of money in the forex reserves.

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