This sentence of Yi Gang is the golden rule that runs through the history of the central bank for hundreds of years: the stability of monetary value is the foundation of the authority of the central bank. The central bank was originally born in England to facilitate the governments financing. The currency issued by the central bank is essentially the central banks debt to the money holders. In the era of gold and silver standard, the public can exchange their money into precious metals at any time. The central bank needs to use the precious metals in reserve to pay debts. In the era of credit currency, although the central bank no longer has the obligation to honor precious metals, the currency circulating outside is still in the form of central bank liabilities, which is clearly recorded on the balance sheet of the central bank, representing the commitment of the central bank to all currency holders at home and abroad, and the basic requirement to maintain this commitment is that the value of creditors rights does not shrink.
The stability of currency value is directly reflected in the stability of prices. Any inflation is a monetary phenomenon. Therefore, almost all central banks have set specific price targets to ensure that the amount of money issued meets the actual needs of the economy. In order to promote economic expansion, the price growth target is generally 2% or more in both developed and developing countries, but this conflicts with maintaining the stability of the currency value. Therefore, the central bank needs to set policy interest rates to affect the financial market, so that currency holders can obtain risk-free returns no less than the price rise.
However, this situation was overturned after the financial crisis in 2008. Unconventional monetary policies such as zero interest rate, even negative interest rate and quantitative easing became routine. In some European countries, peoples deposits not only failed to receive interest, but also paid safekeeping fee to banks. Mortgage loans issued by banks not only did not receive interest, but also regularly reduced the principal of borrowers. The flood of liquidity has not only brought economic recovery, but also pushed up asset bubbles. The price of Treasuries in some European countries has surged to nearly 2 times the face value.
At present, low interest rates can be used to stimulate the increase of debt scale of the whole society, so as to promote economic recovery. If there is another economic crisis, what policy tools are available for each central bank?
As Yi Gang mentioned in September this year and the above article: in the next few years, major economies that can still maintain normal monetary policy will become the highlight of the global economy and the envy of the market.
To judge and measure monetary policy, it is essential to see whether it is beneficial to the interests of the overwhelming majority of the people. To maintain a positive interest rate and a normal upward sloping yield curve is conducive to providing positive incentives for economic entities in general, in line with the traditional culture of saving and interest for Chinese people, in favor of moderate saving and sustainable economic and social development.
Under the background of global interest rate reduction, the Central Bank of China did not follow the sharp interest rate reduction, but mainly used targeted rate reduction, launched private enterprise bond financing support tools, researched and created private enterprise equity financing support tools, unblocked the interest rate transmission mechanism, and realized the accurate drip irrigation of the real economy. Even though the MLF and LPR have declined recently, only five basis points of adjustment have been made, far away A 25 basis point cut below past benchmark rates. In terms of global comparison, Chinas interest rate remains relatively high, with sufficient policy space.
The fundamental driving force of long-term economic growth is not money supply, but technological progress and economic restructuring. Only by not letting the bill become Mao can we stick to the original mission of monetary policy to protect the well-being of the overwhelming majority of the people. It can be said that this is the most precious promise of the central bank.
Source: editor in charge of daily economic news: Zhong Qiming