Imagine if your wallet could suddenly duplicate its own banknotes, wouldn't that sound like a fantasy?
But for China, this is not just an illusion – the central bank's recent moves herald a revolution in the currency issuance mechanism, perhaps the most profound U-turn in China's monetary policy since the reform and opening up.
Let's put the numbers to the talk.
According to the central bank's data, since the exchange rate reform in 1995, the proportion of foreign exchange in the central bank's balance sheet has risen sharply, and the issuance of the renminbi is closely linked to the US dollar.
However, by 2014, this situation began to change, and the proportion of commercial bank claims gradually increased, indicating that the central bank began to regulate the money supply more through the domestic banking system.
This is reminiscent of the old saying: "You can never go wrong with following the dollar." ”
But now it seems that we are saying: "Dollar, you fly slowly, we go first." This shift is undoubtedly a travesty of monetary policy over the past few decades, and heralds the dawn of a more independent monetary era.
Looking deeper, the central bank's purchase of government bonds in the secondary market is not new in itself, but the normalization of purchases means that the central bank will be directly involved in the process of money creation, which is extremely rare in history.
This change is not only an adjustment of monetary policy tools, but also a profound reflection and innovation of the existing financial system.
Specific to the operational level
The central bank used instruments such as the MLF (Medium-Term Lending Facility) and the PSL (Collateral Supplementary Loan) to convert what was once a foreign exchange account into a claim on commercial banks, a shift that peaked in 2014.
Now, as the reserve requirement ratio continues to fall, the central bank has less and less room for monetary policy, forcing the central bank to find new channels for currency issuance.
In the case of the United States,
By buying Treasury bonds in the secondary market, the Fed has effectively controlled the money supply and supported the recovery of the U.S. economy. This move by the People's Bank of China is undoubtedly an innovative attempt to learn from the experience of the United States and in light of China's national conditions.
In the midst of this quiet revolution, we can't help but ask: when the "new engine" of money issuance is launched, will it bring new inflationary risks, and will our wallets "lose weight" because of this?
Is this move by the central bank a well-planned financial innovation or a helpless "self-help" action?
I'm afraid only time will tell us the answer to all this.