China’s M1, M2 gap does not indicate a liquidity trap

The People’s Bank of China says the growing gap between the M1 and M2 money supply range in July does not indicate that the Chinese economy is entering a liquidity trap. Growth in M1 supply, which includes cash and short-term deposits, accelerated to 25.4 percent in July while M2 supply, which includes longer-term deposits, grew only 10.2 percent and raised concerns of a “liquidity trap.” The central bank says it is normal to see some fluctuations in the monthly money supply and credit data, and there is no direct connection with the “liquidity trap” hypothesis.

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