(Economic Observation) China's finance and financial academics argue about "monetization of fiscal deficits"

  China News Agency, Beijing, May 19 (Reporter Zhao Jianhua) Active fiscal policies should be more active and promising, stable monetary policies should be more flexible and appropriate, and employment priority policies should be comprehensively strengthened. This is China's latest economic policy mix. Among them, how to coordinate the fiscal policy and monetary policy? Some scholars proposed "monetization of fiscal deficits", which immediately triggered heated discussions and debates.

  The National People's Congress and the National People's Congress will convene soon, and the core data of the positive fiscal policy on the impact of the epidemic, the deficit rate, the special national debt for anti-epidemic, and the local government's specific debt will be put into effect after being reviewed and approved by the National People's Congress. But where does the money come from?

  Liu Shangxi, president of the Chinese Academy of Fiscal Sciences, recently proposed "monetization of the fiscal deficit." The core content is that the People's Bank of China directly purchases Treasury bonds at a zero interest rate in the primary market. The budget size of the special anti-epidemic government bonds can be considered to reach 5 trillion yuan, issued in installments, and directly bought by the central bank at zero interest rates.

  One stone stirred up thousands of waves, and the financial and financial academic circles immediately started a heated debate. Wu Xiaoling, former deputy governor of the central bank, Liu Yuanchun, vice president of Renmin University of China, and Yao Yang, dean of the National Development Research Institute of Peking University, all opposed it.

  Opponents worry that the monetization of the fiscal deficit will turn the central bank into a cash dispenser. The central bank directly printed money to pay off debts, which eventually led to the consequences of inflation. In the past, the restraint mechanism established by various reforms on state-owned enterprises and local governments was immediately vanished, and the impact on the market economy system was endless.

  In addition to the aforementioned worries, the monetization of the fiscal deficit also directly challenges existing laws. In order to stimulate the economy, the central banks of western countries directly purchase government bonds, but the central bank of China does not. The "People's Bank of China Law" stipulates that "the People's Bank of China shall not overdraft government finances, and shall not directly subscribe to or underwrite government bonds and other government bonds." That is, the current law does not permit the monetization of fiscal deficits.

  For a long time after the founding of New China, finance and currency were the same. China pursues a regulatory policy that makes no distinction between fiscal policy and monetary policy. To this end, China has paid a painful lesson. National retail prices rose by 21.7% in 1994.

  Opponents believe that the traditional policy space is still ample, the monetary policy tools have not failed, and the market space for government debt issuance is still large. A large number of commercial banks and residents holding large amounts of cash need to purchase government bonds. National debt issuance does not require the central bank to directly enter the primary market to purchase.

  Liu Shangxi believes that the epidemic has brought unprecedented impact on China's economic and social development, and the challenges facing the current economic development are unprecedented. To hedge the impact of the epidemic, fiscal policy must be more proactive. Finance should not only emphasize economic efficiency, but also promote social equity. Under the epidemic, the most affected are small and medium-sized enterprises, self-employed persons and low-income groups. Under such a huge impact, it is necessary to lean towards social equity. But where does the money come from?

  Liu Shangxi said that tax cuts and fee reductions cannot be “always on the road”, and they cannot be kept down continuously. The financial capacity must be considered. From January to April, the national fiscal revenue decreased by 14.5% year-on-year. Among them, tax revenue fell by 16.7%. Under the impact of the epidemic, local fiscal revenue in more than half of the provinces fell by more than 10%, while at the same time there was a large amount of rigid expenditure. It can only be compensated by issuing bonds.

  Liu Shangxi said that if large-scale issuance of treasury bonds to residents, enterprises and commercial banks, there will be crowding out effects. If the government uses more money, the marketable funds, including banks, will decrease accordingly. Large-scale debt issuance will increase the financial burden in the future, that is, the burden on taxpayers, which may change the current consumption behavior of taxpayers. If the "monetary deficit is moderately monetized", it will help to better guide market expectations.

  In the face of opponents, Liu Shangxi insisted that during extraordinary times, finance and finance should be closely combined to form a new combination, that is, a moderate fiscal deficit monetization. The monetization of the fiscal deficit is not "excessive". It must be reviewed and approved by the National People's Congress before it can be implemented. (Finish)