China Calls for Caution on new Credit Instruments

A Chinese newspaper said the country must be careful about introducing credit instruments to avoid the risk of an uncontrolled credit expansion.

It said: “The introduction of credit, while undoubtedly facilitating business, could result in unhealthy expansion of the volume of money in circulation…” adding that the ordinary consumer must learn how to use credit wisely.

The paper said in an editorial that “a sound approach and one that will not entail the risks of introducing uncontrolled expansion of credit into the monetary system is the present one of issuing renminbi in larger denomications.”

Today, the first two of nine new bank notes, including notes for 50- and 100-yuan were introduced. The largest denomination had been 10 yuan.

The paper said the new notes are necessary because of the rapid development of the economy, which has made it inconvenient to carry large amounts of cash in small denominations.

Economists have been urging that personal cheques, buying on instalment, letters of credit and credit cards be introduced more widely, it added.