Is there a long run demand for currency in China?

The record of Chinese monetary authorities at targeting MO in the late eighties early nineties is rather poor. This paper thus first aims at determining whether the instability of currency demand is responsible for this. By so doing we show, using adequate econometric techniques, that a long-run demand for currency did exist over the 1988-1993 period, with quarterly data. Most previous studies concluded that the income elasticity of currency demand in China is very high. The second objective of the paper is to test for the robustness of this result. We show that this income elasticity is unity when proper account is taken of institutional variables representative of the transition process.