THREAD: A recent paper by Yu Yongding and Zhang Yi on monetary financing in China:
new.cf40.org.cn/uploads/202006… 1/5
#monetarypolicy #fiscalpolicy #COVID19 #economicstimuluspackage
In this paper, the authors first analyzed the impacts of two approaches to fiscal deficit financing (issuing government bonds and monetary financing), then further evaluated the possibility of adopting these approaches in China and their pros and cons. 2/5
They suggest China take the following order when choosing financing approaches:1, issue government bonds to non-banking financial institutions (general public); 2, issue government bonds to commercial banks; 3, launch the Chinese version of QE; 4, monetary financing. 3/5
Because of the unique characteristics of the Chinese economy such as high savings ratios in the household sector and high growth rates, China may still be far from having to monetize its deficit. However, this approach should not be ruled out as an option. 4/5
China needs to stick to the core goal, i.e. economic growth; all policies must be flexible and reality-based, rather than rigidly based on traditional theories. Only in this way can it sustain economic growth and successfully address various problems and challenges it faces. 5/5
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