Monetary policy of China
The monetary policy of China aims to keep the value of the Renminbi, the official currency of the People's Republic of China, stable and contribute to economic growth.[1] Monetary policy concerns the actions of a central bank or other regulatory authorities adopt to manage and regulate currency and credit in order to achieve certain macroeconomic goals.[2]
Monetary policy tools
[edit]Open market operations
[edit]It refers to the central bank ’s policy of buying and selling government bonds to control the money supply and interest rate in the financial market .
Deposit reserve policy
[edit]It means that the central bank imposes a deposit reserve ratio on deposits of commercial banks, etc.
Central Bank Loans
[edit]It refers to the central bank to use monetary base to specialized banks, other financial institutions, in a variety of ways of financial intermediation general term.
Interest rate policy
[edit]Central bank ’s policies and measures to control and regulate market interest rates in order to influence the supply and demand of social funds .
Exchange rate policy
[edit]Lifting of a government using the national currency exchange rate to control the feed exports and capital flows in order to reach the international balance of payments purposes.
Permanent loan facilities
[edit]It is a Short-term Liquidity Operation, it is used when there is a temporary fluctuation in the liquidity of the banking system.
2010s policy tools
[edit]As well as heralding a market-based approach, the system and its range of tools offers the central bank more autonomy to set policy and marks a significant change for monetary policy making in China.[3]
Starting in 2016, the PBoC has used a market-based approach involving closer management of liquidity in the banking system and an expanded range of tools, such as repos (or reverse repurchase agreements) and lending facilities, to promote better capital allocation and guide market interest rates to more closely match its objectives. The new tools allow the central bank to be more proactive and targeted in how it goes about handling monetary policy.
During the era of low to zero interest-rates, the PBoC maintained moderate interest rates unlike most other major central banks. According to an analyst cited by CNBC, this stabilized the economy and slowed down the rise of property values.[4] Instead the PBoC utilizes targeted tools to stimulate specific areas of the economy, an approach that central banks elsewhere started to follow.[5]
The renminbi currency value is also heavily influenced by other government policy instruments such as capital controls and trade policy, for instance restrictions on the import of gold paid in dollars.[6]
Policy objectives
[edit]Pan Gongsheng, deputy governor of the PBoC, stated that the internationalization of the renminbi (currency of China) is a major highlight of China's financial reform in the past decade. They have set new objectives on which to focus their new policy: first, to adhere to the "priority in national currency" and expand the cross-border use of renminbi; second constantly promote the convertibility of the capital account in RMB; third, consolidate the market base for the reform of the exchange rate commodification; finally, improve the macro prudential management framework.[7]
The monetary policy of the PBoC has been among the most advanced in terms of green finance according to ratings.[8][9] The PBoC used both window guidance as well as favouring green bonds markets in its open market operations to encourage green finance in China.[10][11]
Interest rates
[edit]Previously, interest rates set by the bank were always divisible by nine, instead of by 25 as in the rest of the world.[12][13] However, since the central bank began to increase rates by 0.25 percentage points on October 19, 2010, this is no longer the case.
PBC latest interest rate changes:[14]
| Change date | Interest rate |
|---|---|
| July 22, 2024[15] | 3.350% |
| Aug 21, 2023[16] | 3.450% |
| June 20, 2023[17] | 3.550% |
| August 20, 2022 | 3.650% |
| January 20, 2022 | 3.700% |
| December 20, 2021 | 3.800% |
| April 20, 2020 | 3.850% |
| February 20, 2020 | 4.050% |
| November 20, 2019 | 4.150% |
| September 20, 2019 | 4.200% |
| August 20, 2019 | 4.250% |
| October 23, 2015 | 4.350% |
| August 25, 2015 | 4.600% |
| June 27, 2015 | 4.850% |
| May 10, 2015 | 5.100% |
| February 28, 2015 | 5.350% |
| November 21, 2014 | 5.600% |
| July 6, 2012 | 6.000% |
| June 8, 2012 | 6.310% |
| July 7, 2011 | 6.560% |
| April 6, 2011 | 6.310% |
| February 9, 2011 | 6.060% |
| December 26, 2010 | 5.810% |
Reserve requirement ratio
[edit]
PBC latest reserve requirement ratio (RRR) changes:
| Change date | Reserve requirement ratio | Extra cash for financial system |
|---|---|---|
| December 2008 | 21.0% | |
| December 2011 | 20.5% | 350 billion yuan ($55 billion)[18] |
| May 2012 | 20.0% | 400 billion yuan ($63.4 billion)[19] |
| February 2015 | 19.5% | 600 billion yuan ($96 billion)[20] |
| April 2015 | 18.5% | 1.5 trillion yuan ($240 billion)[21] |
| August 2015 | 18.0% | 650 billion yuan ($101 billion) |
| March 2023 | 7.6% | 500 billion yuan ($72.6 billion)[22] |
| September 2023 | 7.4% | 500 billion yuan ($68.71 billion)[23] |
| January 2024 | 7.0% | 1 trillion yuan ($140 billion)[24] |
| September | 6.4% | 800 billion yuan ($113 billion)[25] |
References
[edit]- ^ Zhou, Xiaochuan (November 30, 2012). "China's Monetary Policy Since the Turn of the Century". Caixin Online. Retrieved 2013-06-18.
- ^ Burdekin, Richard C.K.; Siklos, Pierre L. (September 2008). "What has driven Chinese monetary policy since 1990? Investigating the People's bank's policy rule". Journal of International Money and Finance. 27 (5): 847–859. doi:10.1016/j.jimonfin.2008.04.006. hdl:10125/3686.
- ^ Spencer Sheehan "China’s Subtle But Significant Attitude Change on Monetary Policy"
- ^ Cheng, Evelyn (2019-10-23). "Why China isn't cutting lending rates like the rest of the world". CNBC. Retrieved 2021-06-18.
- ^ "China leads in precision-guided central banking. Does it work?". The Economist. 2021-02-11. ISSN 0013-0613. Retrieved 2021-06-18.
- ^ "Exclusive: China curbs gold imports as trade war heats up". Reuters. 2019-08-14. Retrieved 2019-08-14 – via www.reuters.com.
- ^ "China to expand cross-border RMB use". www.ecns.cn. Retrieved 2021-06-18.
- ^ "The Green Central Banking Scorecard". Positive Money. Retrieved 2022-06-06.
- ^ "Green Central Banking Scorecard". Green Central Banking. Retrieved 2022-06-06.
- ^ Dikau, Simon; Volz, Ulrich (2021-12-08). "Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment". Climate Policy. 23: 122–137. doi:10.1080/14693062.2021.2012122. ISSN 1469-3062. S2CID 245098383.
- ^ Macaire, Camille; Naef, Alain (2022-01-09). "Greening monetary policy: evidence from the People's Bank of China". Climate Policy. 23: 138–149. doi:10.1080/14693062.2021.2013153. ISSN 1469-3062. S2CID 235592376.
- ^ "Calendar, Abacus Help Determine Size of Chinese Rate Increases". Bloomberg. May 18, 2007. Archived from the original on July 8, 2007. Retrieved March 10, 2017.
- ^ "Viewpoint: The "divisible by nine" rule". Info.gov.hk. Archived from the original on November 12, 2007. Retrieved December 4, 2017.
- ^ "PBC base interest rate – Chinese central bank's interest rate" Archived May 21, 2020, at the Wayback Machine, Global-rates.com. Retrieved 2018-05-19.
- ^ Wong, Kandy (22 July 2024). "China cuts key rates after third plenum to support economy, but 'heavy lifting' needed". South China Morning Post. Retrieved 22 July 2024.
- ^ "China cuts key interest rate as recovery falters". BBC News. 2023-08-21. Archived from the original on August 21, 2023. Retrieved 2023-08-21.
- ^ "China cuts lending benchmarks to revive slowing demand". Reuters. 20 June 2023. Archived from the original on October 25, 2023. Retrieved 20 June 2023.
- ^ "China's Reserve-Ratio Cut May Signal Economic Slowdown Deepening". Bloomberg.com. November 30, 2011. Archived from the original on November 7, 2017. Retrieved December 4, 2017.
- ^ "China Lowers Banks' Reserve Requirements to Support Growth". Bloomberg.com. May 12, 2012. Archived from the original on November 16, 2017. Retrieved December 4, 2017.
- ^ Wei, Lingling (February 5, 2015). "China Cuts Reserve Requirement Ratio". Wsj.com. Archived from the original on November 7, 2017. Retrieved December 4, 2017.
- ^ "Economists React: China's Aggressive Cut in Banks' Reserve Requirement Ratio". Blogs.wsj.com. April 20, 2015. Archived from the original on November 7, 2017. Retrieved December 4, 2017.
- ^ Tang, Frank (17 March 2023). "China releases US$72.6 billion of liquidity with cut to banks' reserve requirement ratio". South China Morning Post. Archived from the original on June 20, 2023. Retrieved 20 June 2023.
- ^ "China cuts banks' reserve ratio for second time in 2023 to aid recovery". Reuters. 14 September 2023. Retrieved 12 July 2024.
- ^ Tang, Frank; Nulimaimaiti, Mia (24 January 2024). "China cuts banks' reserve ratio, signals more tools in pipeline to quell fears". South China Morning Post. Retrieved 12 July 2024.
- ^ "China Unleashes Stimulus Package to Revive Economy, Markets". Bloomberg News. 24 September 2024. Retrieved 24 September 2024.
