What Is Hot Money?

Hot money refers to hot money, or speculative short-term funds. In the business dictionary, hot money is defined as: "quickly moving short-term capital with high liquidity to any country that can provide better returns. The Shanghai Securities Research and Development Center believes that the traditional hot money mainly refers to international short-term capital, but according to China's national conditions, hot money includes both international short-term capital and medium- and long-term capital. ^[1]

Hot money

Hot money means

Hot money aka

First, overall inflation has caused prices to rise across the board, but ordinary people cannot afford it.

Second, increase the reserve ratio, but this has limited impact on China's stock market.

Third, look for another place to divide and release floods, such as letting the real estate market re-energize, but citizens cannot stand it.

Fourth, to speed up the pace of RMB appreciation, a quick step is in place, and it will be announced that it will not appreciate within a few years, but foreign trade companies will be bankrupted and unemployment will not be solved.

Fifth, expand China's securities market. The measures adopted include encouraging listed high-quality state-owned enterprises to organize listings and public offerings, or to accelerate the return of red-chip stocks. They also include allowing foreign-funded companies to issue A shares. ^[2]

For institutions and individuals related to the cross-border movement of illegal funds such as "hot money", the foreign exchange management department will, in accordance with the "Foreign Exchange Management Regulations of the People's Republic of China," order them to rectify and confiscate illegal income, and will also impose the amount involved 30 A fine of less than 30% of the wealth gained; for serious cases, a fine of more than 30% of the amount involved may be imposed. For financial institutions that have verified violations of foreign exchange laws and regulations, the foreign exchange management authorities may also order them to stop operating related businesses, and issue direct warnings and administrative fines to those in charge and other directly responsible persons. ^[2]

1. Reduced autonomy in money supply and monetary policy. First, the inflow of international hot money has increased foreign exchange reserves and caused a large excess of liquidity. In addition, in an open economy, there are contradictions in the three goals of free international capital flow, exchange rate stability, and independence of monetary policy. China has chosen a stable exchange rate system. At present, international capital has achieved a certain degree of free flow, which will inevitably restrict the independence of monetary policy.

2. Limits the use of monetary policy tools. China mainly adopts measures such as issuing central bank bills and raising deposit reserves. If the response is not correct, it will easily cause inflation.

3 Weakened the effects of monetary policy. On the one hand, the flow of hot money to the stock market and the housing market may promote the bubble expansion of the asset market. On the other hand, the reduction of central bank re-loans will reduce the money supply invested in the actual economic sector and make the enterprise insufficient.