COMPARATIVE ECONOMIC STUDIES, XLII, NO. 3 (FALL 2000), 77-100 The Changing Role of Money in China and Its Implications Carsten A. Holz Hong Kong University of Science & Technology Journal of Economic Literature Classification Numbers: E42,E50,O16,O53,P21,P34 Keywords: Functions of money, financial intermediation, financial sector development, financial reform in transition economies Economic development is highly correlated with financial sector de- velopment. But the emergence, development, and economic implications of different financial structures are not well understood. This paper analyzes the emergence and development of China's financial structure since the be- ginning of the economic reforms. By focusing on the functions of money, monetary policy, and financial intermediation, it argues that although agri- cultural and industrial reforms in the early 1980s have led to significant changes in the financial system, financial liberalization has progressed little since. The creation of new financial institutions and markets throughout the 1990s and the recent abandonment of some of the traditional administrative control instruments do not signify a systemic change as the underlying func- tions remain constrained. The author is grateful for criticism and suggestions from Thomas P. Lyons, Judith Banister, Zhu Xiaodong, and the participants of the Asian Pacific Rim Experience Session of the Chinese Economic Association of North America at the 1998 Allied Social Science Association meetings. 77