1. reduces the efficiency of the capital market.

Any measures that aggravate "financial repression" will reduce the efficiency of the restricted bank-oriented capital market, and its cost will be particularly high. Because if the total demand decreases, resulting in the bottleneck of the total supply of goods and services, this decline in demand is self-defeating. If the total demand of goods and services decreases relative to the total supply, the price level will only fall (or stop rising). Price can't truly reflect the relationship between supply and demand, and can't stimulate supply and limit demand.

2. Therefore, economic growth cannot reach the optimal level.

Financial repression may hinder the initial economic growth. It has been proved that monetary reform can stimulate the growth of real output by improving the propensity to save and the quality of capital formation. On the contrary, the positive impact of the high growth rate of developing economies on the propensity to save and the propensity to buy monetary assets also needs to be affirmed.

According to Keynes's theory, the premise of an acceptable level of economic growth is that investment equals savings. However, in developing countries, due to financial repression, it is difficult to reach the optimal level of savings, and the savings mobilized by finance cannot be effectively converted into investment, which leads to the fact that investment cannot be equal to the output of savings, and ultimately the economy cannot reach the expected growth level, and financial repression affects economic growth.

3. It restricts the banking system to meet the needs of economic growth.

Inhibitors believe that the banking system should expand until the actual income from holding money plus the marginal cost of providing banking services equals the marginal income from new investment. And think that this financial paradise is at J point, which is the optimal monetization point. An effective banking system can guide private savings to high-yield investments. However, under the financial repression, the expansion of the banking system has been limited, and the theoretical boundary can not be reached at all. The marginal cost of real money income and services is often greater than the marginal income of new investment, and the banking industry itself has defects and cannot guide private savings to invest in high-yield areas.

4. Economic differentiation has intensified.

Another important financial phenomenon in developing countries is exchange rate suppression, that is, the overvaluation of local currency. It leads to the lack of international competitiveness of domestic commodity exports and restricts domestic commodity exports. Because the authorities support export trade through financial repression, buy agricultural and sideline products from farmers at low prices, but subsidize exporters when exporting, or change the terms of trade of goods from the perspective of benefiting finished products, and extract compulsory savings from other places, especially rural areas. On the other hand, as mentioned above, endogenous financing makes income distribution beneficial to the rich who already have a lot of wealth in the city. In this way, the poor will be deprived and poorer, and the rich will benefit from distribution and become richer. The principle of fairness in the market economy is not reflected here.

5. Financing forms are limited.

After all, the internal accumulation of an enterprise or individual is limited, so external financing has become a force that everyone is eager for. Winning the power of external financing is equivalent to having a rare financial resource and winning the right to development. However, under the financial repression, external financing, especially for small and medium-sized enterprises, is restricted, and only some large enterprises that the government considers extremely important have the right to external financing. The consequence of restricting external financing is that a large number of enterprises are prevented from making continuous investment to obtain the best production technology.

Financial repression means that the government restrains the development of the financial system through excessive intervention in financial activities and financial system, and the lagging development of the financial system hinders the economic development, thus causing a vicious circle of financial repression and economic backwardness. These means include financial policies and financial instruments that distort financial prices, such as interest rates and exchange rates.