Analysis of money shortage from the perspective of money supply and demand

China's economy is short of money, and my life is hard. It's not that the money shortage has any influence on me, but that almost all my media friends have drafted it, hoping that I can analyze or comment from the financial point of view. So I read all kinds of media reports, solemnly spread out a blank page, and repeatedly deduced various interest rate equations, hoping to find out the mystery. However, after a busy day, one text message after another, all kinds of speculations come and go on the internet, and I am still doing nothing here. At this time, a friend who studied philosophy gave me a useful reminder: it is not necessary to clarify the causal relationship of those clues, perhaps these clues themselves reflect the research value. So I decided to present some clues smeared on A4 paper these days to the public, hoping to give some useful help to those who continue to explore.

Let me clarify one thing first: I am opposed to the view that the soaring interbank lending rate is a direct result of insufficient liquidity supply. Therefore, as long as monetary policy is relaxed, the lending rate will fall and market panic will disappear. No matter what kind of lending relationship, interest rate reflects the risk level behind lending, which has nothing to do with supply and demand (at least in the long-term equilibrium).

However, from the perspective of asset pricing theory, insufficient liquidity can indeed affect the price of funds (that is, interest rate) under short-term equilibrium conditions, but one of two conditions must be met: either the market suddenly breaks out around a financial instrument and traders cannot gather enough funds in a short time; Either the loan term is seriously mismatched, the loan term structure is too long, and the fund source term structure is too short, which leads to the accumulation of default risk.

Judging from the conditions, we can rule out the capital market, and there is no abnormality in the stock market volume before and after the money shortage. The expectation that the IPO may be restarted at the end of July, which may cause money shortage, is also untenable, because the market clarified by the CSRC is still weak, indicating that the root cause is not here.

Strange, there are signs that the market is in a period of declining confidence in economic recovery. How can there be a lot of credit? Could it be that the surge in non-performing assets of commercial banks leads to insufficient liquidity? Although the central bank and some foreign-funded institutions have released reports on the rise of non-performing assets of domestic commercial banks, there is no evidence that these non-performing assets risks will break out in a short time, and there is no evidence that non-performing assets have become losses.

However, we should not only focus on the asset business. Another possibility is that commercial banks occupy funds in businesses that should not occupy funds. According to a recent report by Fitch Ratings, the cash shortage in China is likely to affect the cash flow of wealth management products of commercial banks. Although no details are disclosed, if this conclusion is established, it can only show that Fitch has mastered the evidence that commercial banks circle money in the field of wealth management products. Otherwise, how can the settlement of intermediary business be related to the shortage of money? This reflects a wide range of drawbacks of intermediary business developers in China's commercial banks, and may even be behavioral distortions.

This goes back to the old topic, that is, how should commercial banks in China develop? As a large comprehensive China company, it is inevitable to focus on the cake of profit income. Since the beginning of the year, the economic recovery has been weak, and enterprises have begun to rack their brains to expand their financial resources. To this end, a Committee of the central bank also issued a special research report, calling on commercial banks to open the door to credit for small and medium-sized enterprises that had previously been dismissive. If even the disdainful objects can be favored and occupied, isn't it natural that the wealth management products, as the darling of commercial banks, will change under fierce competition?

If this statement is more speculative, then the evidence of capital occupation of commercial banks in another non-asset business is conclusive. It is reported that some domestic foreign trade enterprises widely use forward exchange rate agreements to hedge the profit losses caused by RMB appreciation, and the opponents of the agreements are domestic commercial banks. Since the beginning of this year, only one bank, Fujian Branch, has signed such an agreement worth $5 billion (shorting the exchange rate between RMB and USD). Although this exchange rate agreement only settles the exchange rate difference, what if similar business may happen in other businesses in other provinces?

These forward exchange rate agreements can also lead to problems in the RMB issuance mechanism. For a long time, people have been criticizing the RMB issuance mechanism as a dollar-driven mechanism. Although the foreign exchange settlement system has been abolished, the essence of this mechanism has not changed. In the case of rising demand for hedging exchange rate risks, enterprises are still forcing the central bank to issue RMB through derivatives such as forward exchange rate agreements. If this situation is true and the number is indeed huge, it may not be wise to blindly exclude the release of liquidity under the current mechanism. To solve the problem, innovation is the right way, that is, the distribution mechanism.

If these two phenomena really exist, then the mismatch of liquidity second term structure is almost inevitable. How many similar situations are there? Real estate, shadow banking and local government debt accumulation? This is a train of thought worth developing.

The story is not over yet. In the process of my derivation, there is another problem that always haunts my mind: any abnormality of short-term interest rate should be accompanied by fluctuations of at least one forward interest rate and one long-term interest rate, and from the fluctuations of these two interest rates, it is possible to see clearly the internal mechanism behind the current abnormality, just like two flashlights shining in a corner at the same time, showing a clearer picture. If the mechanism behind the "abnormality" is unbalanced, it means that the arbitrageur will stand up and correct the "abnormality". Regrettably, at present, China's interest rate market is seriously inadequate in both market level and category structure. It is impossible to use arbitrage to test whether the phenomenon is abnormal or not, and the abnormal mechanism is bound to make market participants fall into speculation and fantasy. Perhaps this is also the fundamental reason for the confusion of public opinion after the money shortage. (The author is Tian Li, director of the Institute of Financial Engineering, School of Finance, Harbin University of Commerce)