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China's leading think tank in finance and macroeconomics - Independence. Insight. Influence.

Oct 22, 2019, 6 tweets

Question——who should be the main driving force of the process of marketization of #interestrate? Should it be the #centralbank or market itself as a result of factors like financial disintermediation? By CF40 member Wu Ge, 1/6 cf40.org.cn/uploads/201910…

There is a natural connection between interest rate liberalization and financial disintermediation. Recently, the central bank took the lead in releasing the new LPR (Loan Prime Rate) mechanism. 2/6

Previously, it also launched a mechanism in which points are added to the MLF (Medium-term Lending Facility) rate to improve transparency for quoting. 3/6

In #US, a fully liberalized interest rate is largely based on financial disintermediation instead of #benchmark interest rates for deposits and loans. In 1993, the #FED realized the deposit and loan benchmark interest rate would be unnecessary which thereby was cancelled. 4/6

#Shadowbanking in the US used to play an indispensable role in the process of the marketization of interest rate. In contrast, in China, it appears that the financial market is moving away from financial disintermediation and paying more attention to bank's lending business. 5/6

Shadow banking should not be discriminated in the process of interest rate liberalization. Instead, a more positive and supportive approach should be adopted to guide the industry to develop in a more market-oriented way. Relevant regulatory measures have to keep up. 6/6

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