On the eve of the two sessions! Central bank sends a continuous voice: deficit monetization is not advisable

 On the eve of the two sessions! Central bank sends a continuous voice: deficit monetization is not advisable

The origin of the argument

Printing money here means that the government designates the central bank to print money. The specific form can be to let the central bank hold the bonds issued by the government permanently.

Now the whole monetary operation has changed qualitatively, and the mechanism of inflation has also changed. The combination of Finance and finance can consider breaking through the traditional idea that finance cannot overdraw.

In the past, the emphasis on fiscal non overdraft was due to the fear that deficit monetization will lead to hyperinflation, but now it seems that this possibility is very small, almost zero. This has been proved by the practice of measurement width in foreign countries for more than ten years.

Therefore, we need to reflect on the existing economic theory including monetary theory, fiscal policy and monetary policy can implement a new combination.

He also mentioned that even if there is inflation, there is a way to hedge it. The inflation caused by currency issuance is lagging behind, and the time difference can be made, which does not affect the monetization of deficit on a certain scale and to a certain extent. As for the legal restrictions, they can be solved by special authorization of the peoples Congress.

Opposition from the central bank

A few days before the opening of the two sessions, people sent by the central bank voiced one after another today that monetization of fiscal deficit is not advisable.

Ma Jun, a member of the National Finance Research Institute of Tsinghua University and member of the central bank monetary policy committee, said in the article WeChats official account of financial deficit, which is in charge of the financial times by the central bank, if we opened the deficit monetization, we finally gave up the last line of defense against the governments financial behavior.

Ma Jun said that under the current legal framework of most countries (including China), the government (Finance) is not allowed to directly borrow from or issue bonds to the central bank.

This is because in the history of many countries that once allowed the finance to borrow from the central bank and issue bonds to survive, hyperinflation occurred, such as China during the Kuomintang period, Chile and Peru in the 1970s-1990s, and Venezuela recently.

The reason is very simple. Once the government thinks that it can obtain financing from the central bank in an unlimited amount and with no success, its fiscal expenditure behavior will lose discipline seriously, and its interest will shift from trying to increase revenue and reduce expenditure to how to spend money to obtain current public support or solve various urgent needs.

Ma Jun said that for China at present, although the epidemic has caused a short-term impact on the economy and fiscal revenue and expenditure, the momentum of economic recovery has been quite obvious since the second quarter, and the fiscal revenue and expenditure situation will gradually improve.

Wu Xiaoling, former deputy governor of the Central Bank of China and director of the Wudaokou Financial College of Tsinghua University, also said in the article on the official account of the WeChat public in the financial times that we should tighten up the financial expenditure, improve the efficiency of the use of financial funds, safeguard fiscal discipline and safeguard the healthy development of Chinas economy.

Wu Xiaoling suggested that social funds should be allowed to buy government bonds in the primary market. If there is a problem with market liquidity, the central bank should buy and sell government bonds in the secondary market to provide liquidity.

The central bank buys from the primary market, which lacks initiative and has limited restrictions on fiscal discipline. Therefore, central banks generally do not buy from the primary market, and even the national legislation forbids the central bank to buy from the primary market.

She believes that the Chinese market still has a certain capacity for government bonds. The Central Bank of China does not need to directly purchase government bonds in the primary market. It should provide the necessary liquidity support to the market through the open market trading of government bonds.