Editor’s note: Against the background that RMB is mainly circulated domestically, the expansion of the balance sheet of the People’s Bank of China is actually the result of a passive currency injection mechanism and financial inefficiency, mainly based on foreign exchange reserves. , is not enough to prove its decisive role in the currency supply on the international market. The rate of expansion of the Federal Reserve's balance sheet is much higher than that of the People's Bank of China. To a certain extent, the expansion of the People's Bank of China's balance sheet is the result of the expansion of the Federal Reserve's balance sheet. Since the subprime mortgage crisis, central banks in various countries have adopted loose monetary policies to stimulate economic growth. Since countries have different macroeconomic environments and different levels of financial market development, specific policy operations vary from country to country, and the actual effects of their monetary policies are also different. However, expansionary monetary policies have the same result: the assets of central banks in various countries are The size of the balance sheet has expanded dramatically. In the modern money supply mechanism, the expansion of the central bank's balance sheet means an increase in base money supply. Under the action of the money multiplier, a money supply is formed that is several times the base money. Therefore, the expansion of the central bank's balance sheet has brought great worries to the market. Once the economic situation improves and the money multiplier accelerates, it may cause severe inflation. At present, among the balance sheets of central banks of various countries, the balance sheet of the People's Bank of China is the largest, so it is particularly eye-catching. Recently, a research report from Standard Chartered Bank concluded that based on the expansion rate of the People’s Bank of China’s balance sheet and broad money (M2) in the past five years, “the main provider of global liquidity has transformed into the People’s Bank of China, not the People’s Bank of China.” The Federal Reserve or the European Central Bank in everyone’s mind.” Once this point of view was put forward, it immediately attracted widespread attention. Understood from a positive perspective, this statement means that as China's economic strength increases, its financial strength and the international influence of the People's Bank of China are also increasing. The international market has given a new position to the role and role of the People's Bank of China in the rebalancing of the global economy. and new expectations. Understood from a negative perspective, this statement means that the People's Bank of China has to assume or partially assume the responsibility of the main provider of global liquidity and is responsible for global inflation concerns. In the context that the RMB has not yet achieved internationalization, the balance sheet of the People's Bank of China exceeds that of the Federal Reserve and the European Central Bank. This is indeed a phenomenon that needs to be studied and explained. This article believes that there are three main reasons for the huge balance sheet of the People's Bank of China: the passive expansionary injection mechanism of RMB base currency; the financing model based on bank credit; and the relatively low settlement efficiency. These three points complement each other. The relationship between base currency and deposit currency Before analyzing the size of the central bank's balance sheet, we must first clarify the relationship between base currency and commercial bank deposits (ie, deposit currency). For a long time, base currency has been considered the direct source of deposit currency. The central bank, as the final lender, lends or sells base currency to commercial banks, forming deposits of commercial banks with the central bank. These deposits are placed by commercial banks as a source of funds. Go into circulation to form private sector deposits, that is, currency in circulation. But in fact, there is no such direct source relationship between base currency and deposit currency. Commercial banks directly create deposit money. The so-called base currency is the liability to the public created by the central bank through asset expansion, including cash in circulation and commercial banks’ reserves at the central bank. The money supply consists of two parts: cash and deposits. It is the liability of the banking system to the public. Cash is issued by the central bank, and deposit currency is created by commercial banks through loan procedures. Commercial banks do not have the right to issue currency, which means they do not have the right to issue cash. However, commercial banks can create deposits by issuing loans. Each loan issued also increases a deposit. Therefore, the currency creation ability of commercial banks is reflected in their ability to deposit On the creation of money. In this sense, commercial banks do not need to absorb deposits before issuing loans. Using loans to create deposits is the original meaning of the credit money system. Base currency is the guarantee of deposit currency. However, unlike the central bank's absolute currency creation ability, the credit creation ability of commercial banks is relative. That is, the deposit currency of commercial banks must be guaranteed to be cashed into cash issued by the central bank at any time. This is the case for each bank. The prerequisite for bank deposits to be generally accepted by the public. Therefore, commercial banks must hold a corresponding amount of central bank deposits: first, to ensure that cash can be obtained from the central bank at any time to meet customers' cash withdrawal needs; second, to meet inter-bank clearing needs; third, if the central bank stipulates statutory deposit reserves ratio, then the reserves of commercial banks must also meet the statutory reserve requirements. The first and second parts of the deposits mentioned above are usually called excess reserves, which can be understood as the demand deposits of commercial banks with the central bank. The third part of deposits are called legal reserves, which can be understood as the time deposits of commercial banks with the central bank.