Sheng Songcheng, the statistics chief at the People’s Bank of China (PBoC), has called for the application of cash reserve rules on Alibaba Group’s popular internet financial product Yu’E Bao, China Economic Net reported Monday.
Yu’E Bao is not setting aside any reserve for the money market fund even though the cash, which is deposited in banks, is no different from deposits of enterprises and individuals in terms of the nature of contract and the impact on money creation, Sheng was quoted as saying.
He stressed that the basis for reserve requirements is deposit, so he is not suggesting that money market funds should maintain a reserve. However, banks should be required to keep a reserve for the part of the money market fund that is deposited in their accounts, the report said.
More than 95 percent of Yu’E Bao’s 500 billion yuan (US$ 79.97 billion) fund is deposited in banks, and the central bank regarded deposits from non-depository financial institutions as part of the country’s broad money M2 in 2011. As such, Sheng said, it is necessary and implementable to apply deposit reserve rules on such funds.
Aside from insurance companies and money market funds, many non-depository financial institutions such as securities firms, trust and investment corporations, financial leasing companies, and off-balance-sheet financing vehicles are not regulated by the deposit reserve policy, he said.
Sheng said these institutions should comply with the deposit reserve regulations as well, as the amounts of their deposits in banks are growing and affecting financial operations and monetary policies.
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