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Financial Innovation, Financial Disintermediation and
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TitleFinancial Innovation, Financial Disintermediation and  
AuthorLi Hongjin and Su Naifang  
OrganizationPeople’s bank of China; 
Key WordsFinancial Innovation; Financial Disintermediation; Money Supply; Money Multiplier 
AbstractAs the rapid development of interest rates liberalization, financial innovation and financial disintermediation represented by banking wealth management business and internet finance, have gained rapid progress. Meanwhile, the effectiveness of traditional quantity-based monetary policy with the intermediate target of money supply becomes weaker and weaker. In this article, we analyze the credit money creation process under financial disintermediation (internet finance as the example, i.e. money market fund and interbank deposits), and build a novel money supply and multiplier model. We further use the empirical analysis to verify and discuss the model. The results show that financial innovation and financial disintermediation increase the effect of money multiplication, and increase the difficulty to control the money aggregates. It signifies the importance and urgency of the central bank to turn to priced –based monetary policy under current deepening financial reform and financial development circumstance.  
Serial NumberWP705 
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