China Mono-Banking System

The fact that banks control 97% of the world's money supply makes them a vital institution. Banks are the engine of our modern financial system and a source for economic growth. The bank's ability to create credit can have destructive effects; the Great Depression of 1929 and the Great Recession of 2008. In both cases, banks spurred on an asset bubble through overextending credit to aid the purchase of assets. The result was an economic collapse that wiped out wealth and reduced credit creation which stalled productive investments. The lessons of the two great economic collapse support the notion proposed by the author, that bank credit for transactions that do not contribute to the economy should be restricted.

Secondly, out of the twenty-five stockholders of the Bank, five of these were government owned. Thus showing support of the Bank by subscribing to one-fifth of its $35 million (Schlesinger 74). In addition, among the Bank’s functions was to hold all government money, sell all government bonds, and make commercial loans. However, no voters could dictate its policies or reign in its power, due to its privately owned status (Roughshod 2). Finally, the government also allowed bank notes to be used as payment for taxes.

In response to this panic, a committee was established to find the flaws of the current banking system. This committee, the National Monetary Commission, found there were two main flaws dominating the system. First, the currency was not responsive to changes in demand. (Born...13). This meant that the bank had a fixed amount of currency, regardless of the

In the document is also said that even when people have money in that bank people would go to the bank and go get their money since that bank was going to be a failed and it also said that after their failure the repressive effect on the spending of its clients. They couldn’t do anything to help the bank to crash even though they will all be crashed any day.

The banking industry has over the years evolved from simple to large and complex organization. They have grown from one street building into having multiple branches some of which are international. Their clients range from individual and institutions to governments and other banks. Banks do not manufacture physical things. Their work is simply services for money (Koch & MacDonald 2010). Such services include storing, lending and managing money. All people and institutions, as well as governments, need money to operate accordingly.

Now, many of these banking groups are owned by foreign investors, despite attempted safeguards. This ownership has provided investors leverage and influence over the actions of the government because the government owes an exorbitant amount to these banks (Daniel Lederman). The same argument can be made about the United States’ government. This influence can be seen across the board as many decisions now seem to favor only a select few, forgetting about the ramifications for the many.

Randall submits that building firewalls and Chinese walls will abolish the synergies between financial and non-financial institutions. In addition, Randall also points out that government should restrict the areas where synergies is not required to cancel out by building Chinese walls and where the risk is acceptable rather than stop supporting creditors of fragile banks. Randall suggests that there should be barrier for non-banks to enter into banking sector in order to avoid the enlargement of safety net (Randall, 63-74).

Investments as in the case of Chinalco's bid for Rio-Tinto, allowed China to expand its economy. China's state-owned and state-controlled banks were able to weather the economic crisis of 2008 and 2009 in contrast to many western countries. The state could force Chinese banks to start lending money again, without having to wait for the banks to do it on their

the Chinese financial integration on C, S and I in the rest of the world?

Over the past ten years China’s financial flows have fluctuated a fair bit, with down turns and upturns throughout. With an obvious trough when the GFC hit. Although as soon as the GFC finished China’s financial flows bounce straight back up and boomed. As of recent China’s financial flows have been in a deficit and is now looking to be bouncing back up into the positive numbers. (Refer to Figure C)

Money is considered to be a medium of exchange, a unit of account, and a store of value. Medium of exchange means that money is the intermediary instrument that facilitates the exchange of goods. It is also considered to be a unit of account which means it is something that can be used for value for goods and services, record debts, and make calculations. A unit of account, is divisible, fungible, and countable. Lastly money is classified as a store of value meaning it can be stored away through savings and keep its value for later use. The creation of money occurred because of the complexity of exchange in ancient times. Goods and services were exchanged; however, they were unbalanced. Some valued items or services as higher than others. This flaw in the barter exchange led to the invention of an economic system with money as the focus so there was a set value.

The U.S. government made a strict money related administrative framework in mid 1930, which functioned admirably till 1960's. John Marynard Keynes and Hyman Minsky supplanted it with effective money related business hypothesis and new traditional macro hypothesis which consequently brought about an insecure more tightly regulated, the monetary framework through deregulation pushed by the hypotheses of Keynes and Minsky. Case in point, the imperfect foundations and practices of the current money related administration, which is otherwise called the New Financial Architecture (NFA). The base of the NFA is an extremely frail hypothetical establishment. NFA is in view of business banks, lighters regulations like speculation banks and little. Cortty clarifies in his paper that the NFA's key structure is in view of evidently unfeasible suspicions and has no persuading truthful backing . Case in point, China couldn't get away from the effect of worldwide lull as it was inexorably reliant on fares, which consequently brought about closing down numerous assembling firms and made a genuine occupation challenge. New open doors could likewise open in China due to the emergency which may have the

These banks should ideally be divested of any sort of commercial interest, and must act in the best interest of its nation’s economic stability. A lot of meaning is carried out in being identified as ‘independent’ authority, where the bank possess powers to take its own decisions, approve its own legislature, follow its own policies and offer stability to the nation’s economy.

As the article from (The Business Times, 2010) reported, in early January 2010 the government in China ordered banks to control lending following a stimulus-driven credit surge in mid-2009 and is trying to prevent over-investment in the economy.

Private banks, regardless of where they operate all over the world, also facing similar demands arise from the