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Completing China's Interest Rate Liberalization

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  • Yuyan Tan
  • Yang Ji
  • Yiping Huang

Abstract

China's recent removal of the last ceiling restriction on deposit rates in October 2015 is a milestone in interest rate liberalization, but not the end of it. International experience suggests that, without structural and quantitative reforms, simply freeing interest rates can result in major financial stress. Before China's central bank can completely relinquish implicit or explicit guidance for commercial banks' interest rate determination, it needs to accomplish two tasks: improvement of commercial banks' pricing capability as well as the monetary policy transmission mechanism. Both tasks require significant reform measures to be initiated, such as enforcing market discipline, forming a new monetary policy framework, developing money and capital markets, abandoning quantitative restrictions on credit and reforming the financial regulatory system.

Suggested Citation

  • Yuyan Tan & Yang Ji & Yiping Huang, 2016. "Completing China's Interest Rate Liberalization," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(2), pages 1-22, March.
  • Handle: RePEc:bla:chinae:v:24:y:2016:i:2:p:1-22
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    File URL: http://hdl.handle.net/10.1111/cwe.12148
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