Connotation and dimensions of Liquidity:
The meaning of liquidity is relatively broad, which can be summarized into three types: 1) the strength of asset liquidity. 2) The strength of the enterprise's solvency. 3) The third meaning of macro money supply is more closely related to the price trend of financial assets, which is the focus of this paper.
The liquidity of money market can be further divided into three dimensions:
1) liquidity in a narrow sense reflects the amount of funds available in the banking system, represents the liquidity of the whole money market, is the starting point of liquidity transmission, and is also the focus of our attention.
2) liquidity in a broad sense reflects the capital situation of enterprises / individuals / non bank and other entities, and represents the liquidity situation of the whole real economy.
3) financial market liquidity reflects the capital used to allocate stocks, bonds and other financial assets.
Two perspectives for measuring liquidity in a narrow sense:
1) the perspective of quantity refers to the amount of funds that banks can freely control. For commercial banks, their discretionary funds are mainly overstocked.
2) the perspective of price refers to the level of interest rate, which is the result of the balance between supply and demand of funds in the money market.
Liquidity analysis from the perspective of quantity:
The starting point of the central bank's liquidity research is the balance sheet. Different from the general financial statements, the balance sheet of the central bank has only two ends of assets and liabilities, and its own funds similar to owner's equity are also incorporated into the liability end.
Liability side: the liability scale of the central bank's balance sheet can be regarded as the amount of money it issues in order to obtain assets, mainly including 7 items: reserve currency, deposits of financial companies not included in the reserve currency, issuance of bonds, foreign liabilities, government deposits, self owned funds and other liabilities, of which reserve currency (81%) and government deposits (13%) account for a relatively high proportion.
Asset side: the asset scale of the central bank's balance sheet can be regarded as the central bank's use of printing and issuing currency, mainly including 6 items: foreign assets, claims against the government, claims against other deposit companies, claims against other financial companies, claims against non-financial sectors and other assets, of which foreign assets (57%) and claims against other deposit corporate bonds (33%) account for a relatively high proportion.
