The two sides hold each others opinions and do not yield to each other. In the hustle and bustle, the focus of the debate mainly includes:
Whether the current national debt issuing mechanism and monetary policy are effective;
Active fiscal policy has been implemented for many years, among which the core option is to reduce taxes and fees. Liu Shangxi said that tax reduction and fee reduction cannot be always on the road, can not be continuously reduced, and must consider the financial capacity. From January to April, the national fiscal revenue decreased by 14.5% year on year. Among them, tax revenue decreased by 16.7%. Under the impact of the epidemic, more than half of the provinces local fiscal revenue dropped by more than 10%, while there were a large number of rigid expenditures. It can only be made up by issuing bonds.
To whom is the national debt sold? Liu Shangxi said that the central bank purchases directly in the primary market at zero interest rate. This is better than issuing 5 trillion yuan of treasury bonds directly to the market or collecting 5 trillion yuan of taxes in the future.
Opponents insist that government bonds should continue to be issued to the market. Yao Yang believes that at present, the interest rate of national debt is more than 3%, and people and banking institutions are willing to buy it. It can be concluded that there is no need for the central bank to directly purchase bonds in the primary market, and directly issue bonds through the Ministry of finance.
Be wary of inflation or deflation?
For a long time after the founding of the peoples Republic of China, finance and currency were not separated, and the state pursued a regulatory policy that did not distinguish between fiscal policy and monetary policy. To this end, we have paid a painful lesson.
From the 1980s to the mid-1990s, finance could borrow from the peoples Bank of China for overdraft. The unrestricted overdraft of the governments finance leads to the peoples Bank of Chinas passive issuance of additional currency, which directly leads to the rise of prices. In 1994, the national retail price increased by 21.7%.
Opponents worry that monetization of fiscal deficits will turn the central bank into a fiscal cash machine. The central bank directly prints money to repay debts, which leads to inflation. The extremists also draw lessons from the history of the Republic of Chinas hyperinflation.
But Liu said that after the 2008 international financial crisis, Japan and other developed countries implemented super quantitative easing policy, which did not cause inflation, but worried about deflation. The increase in the number of currencies did not directly lead to inflation. Taking the theory of monetary quantity as the theoretical basis of policy-making, it is easy to make mistakes in policy judgment to measure whether there is sufficient liquidity by the amount of monetary quantity.
Failure of existing monetary policy?
Since 2018, the central banks base currency has contracted passively, forcing the central bank to reduce the reserve ratio to expand the money multiplier and expand the loanable funds of commercial banks. But how much more room is there for reduction? Reserve ratio must be kept at a certain level to avoid systemic risk. The world average is about 13%. The reality of our country is that the reserve ratio of the sum of statutory and excess is about 14%.
In the first quarter, Chinas GDP fell by 6.8%, most industries fell, but the added value of the financial industry increased by 6%. How does this explain the real economy of financial services? Is the financing cost of real economy reduced or increased? The unique financial industry can only show that financial transactions are growing, but real transactions are shrinking. According to Liu, this means that the money supply has increased, but only financial transactions have expanded.
Wu Xiaoling, former vice president of the peoples Bank of China and President of Wudaokou School of finance, Tsinghua University, said that the ability and willingness of bank loans are all there, and the transmission mechanism has been smooth. From 2007 to 2017, the balance sheet of the peoples Bank of China increased by 115%, which led to 413% credit expansion and 319% M2 growth. This shows that the traditional theory of monetary banking is not out of date.
Liu Shangxi made clear his opposition. Chinas monetary policy transmission mechanism is unblocked for large enterprises, state-owned enterprises, but for tens of millions of small and micro enterprises and self-employed enterprises. This problem has been discussed for many years and has not been solved effectively. Curiously, since the proposal of monetization of fiscal deficit, opponents insist that the transmission mechanism of monetary policy is smooth.
In less than a month, that has changed so much?
Historical experience failure?
As an opponent, Li Lihui, the former governor of the Bank of China, moved out of his historical experience. He said that in the past 20 years, Chinas fiscal and monetary policy practice has been successful on the whole. We have not adopted the policy of monetization of fiscal deficit, but can still properly cope with the impact of the international financial crisis, effectively control the extent of inflation, effectively control the cycle of deflation, and achieve sustainable economic development.
In a word: the current fiscal and monetary policies do not need to be broken and fundamentally changed.
Under the epidemic situation, the most affected are small and medium-sized enterprises, self-employed and low-income groups. Under such a huge impact, we need to incline to social equity. Liu Shangxi believes that it is difficult to complete the six guarantees in a monologue, whether in fiscal policy or monetary policy. Since 2015, the proportion of loan balance of small and micro enterprises has declined, which proves that without the coordination of financial policies, monetary policies alone cannot really help tens of millions of small and micro enterprises and self-employed people.
Opponents worry that once the opening of the monetization of the fiscal deficit, the constraint mechanism established by the previous reforms on state-owned enterprises and local governments will immediately disappear, and the impact on the market economic system will be endless.
If we want to monetize the fiscal deficit, we need to change the law. Li Lihui stressed that the revision of the law must be careful and strict, and the long-term plan must not be changed because of the urgency. Since the reform and opening up, Chinas fundamental progress has been the establishment of a market economy system, which is exactly the premise of monetary quantity theory.
Any law should keep pace with the times. Liu Shangxi said that if we judge the legitimacy and rationality of academic propositions and countermeasures by whether they are illegal, many reforms will not be discussed.
Liu Shangxi said that there is no departmental interest in front of national interests. The independence of the central bank depends on the overall needs of the country. The central bank is not a country within a state. On the surface, the Central Bank of our country is an administrative organ of the State Council. In fact, it is more like a state-owned enterprise, making money and spending by itself than the national budget system. In this regard, the independence of Chinas central bank is very strong.
The central bank is the ultimate lender, and finance is the ultimate buyer.