ABSTRACT
This chapter discusses the Law of the People's Republic of China on the People's Bank of China (PBOC) stipulates that the PBOC 'formulates and implements monetary policies, prevents and mitigates financial risks and safeguards financial stability', clearly defining the responsibilities of the PBOC. It examines that 'the objective of monetary policy is to maintain the stability of currency value, so as to promote economic growth', which defines the goal of the PBC's monetary policy. The chapter reviews the development of money supply theories and notes the problems that exist with China's current money supply. It proposes a law and economics framework to analyse the main endogenous factors that influence the money supply by exploring the relationship between the money supply and the real economy, the fictitious economy, the international economy, private savings and enterprise loans.
