Tuesday, April 13, 2021

China Still Needs Expansionary Economic Policy — Yu Yongding

To consolidate its post-pandemic growth momentum in 2021, China should not be in a rush to exit from expansionary fiscal and monetary policy. The government may have to issue more bonds than planned, and the People’s Bank of China may need to implement quantitative easing to facilitate this.
The phrase "implement quantitative easing to facilitate this" means that the central bank purchase the portion of the issue required to support the market. This is consistent with MMT's overt monetary financing. The simpler method is just to have the central bank take the issue in first place. The simplest solution is just to issue the currency and leave the reserves created on balance. This would only be matter of change regulation to enable it. The government can always issue the amount of currency needed to employ idle real resources and to fund production of needed resources. China appears to get this already, at least in part. It has been explained to them by Western heterodox economists, e.g, Michael Hudson.

Yu Yongding is an insider so what he says is important.

Project Syndicate
China Still Needs Expansionary Economic Policy
Yu Yongding, former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006

See also at PS

Two new mega-projects connecting Central and South Asia could transform Eurasian security, significantly increase regional economic activity, and potentially bring peace at last to Afghanistan. But most of the world has so far paid little attention to important recent developments.
Central Asia’s Afghan Route to Prosperity
Djoomart Otorbaev, formerly prime minister of Kyrgyzstan in 2014-15

Related

This may explain in part why Chinese regulators are suddenly reacting to over-leverage in the financial system, e.g., the Ant Group IPO fiasco when regulators scotched the deal owing to leverage concerns.

Zero Hedge
"This Is A Fatal Event": China's Bond Market Hammered After Huarong Bankruptcy Rumors
Tyler Durden

4 comments:

Matt Franko said...

"The simplest solution is just to issue the currency and leave the reserves created on balance. This would only be matter of change regulation to enable it."

Well if they have their own version of Pocahontas over there forgetabouwdit....

Tom Hickey said...

Well if they have their own version of Pocahontas over there forgetabouwdit

China's challenge in this regard is that many economists are Western-trained or view Western conventional economics as a model to emulate. Russia, too, where the head of the central bank is a typical central banker. These people need to be replaced.

Andrew Anderson said...

"The simplest solution is just to issue the currency and leave the reserves created on balance. This would only be matter of change regulation to enable it." Tom Hickey

No need to throw out honest accounting; just use negative yielding bonds as CB assets and charge even more negative interest on bank reserves to make those bonds attractive by comparison should the CB desire to sell them.

Besides, ethics dictate that risk-free assets should yield no more than ZERO percent minus overhead costs minus shorter maturity premium = NEGATIVE.

Andrew Anderson said...

Of course, individual citizens should be able to save and use fiat risk-free up to a reasonable account limit, FOR FREE as a natural right of citizenship.