After the epidemic, the Fed took decisive action in March, but before entering the market to purchase assets, the Fed first required the support of the U.S. Department of the Treasury (that is, the Fed did not bear losses for the assets it purchased). This coordination of fiscal and monetary policies was rapid. Stabilized the financial market that has repeatedly blown.
This synergy is expected to continue in a short period of time.
However, the credit of the central bank is still the most precious asset. Once it is destroyed, the consequences will be disastrous. So how should countries promote such coordination in the future?
China, which has been more restrained in its fiscal and monetary policy support this time, is facing a global economy that cannot fully recover in the short term, what should it do next?
In this regard, at the second Bund Finance Summit on October 24, domestic and foreign experts discussed the topic of "Restarting the World Economy: Fiscal Policy and Monetary Policy Coordination".
Fed Principles Walsh: Strengthening the coordination of monetary and fiscal policies at the global level
Kevin Warsh, the distinguished visiting scholar of the Hoover Institution and the principle of the Federal Reserve System, said that monetary and fiscal coordination is not a bad thing. Compared with the coordination of policies within a single country, Walsh's current focus is more on the global level. Monetary and fiscal policies are coordinated, because all countries have very few bullets left.
"Globalization has made countries connected to each other, as is the flow of human resources and capital. When we are facing a big shock, all ammunition has been used out. Previously, many countries swiftly cut interest rates to zero. So in this case, it is more important. It is all countries working together to carry out monetary easing, so that it can work." Walsh said.
In his view, cross-border synergy can bring positive effects to the country.
"If the G20 countries can work together to implement some coordinated monetary and fiscal policies, the effect will be very large. For example, the effect may be even greater when interest rate cuts or QE occur at the same time. If the stimulus is relatively large, it may require the cooperation of central bankers and policymakers. Communicate with each other in advance, so that we can avoid serious currency devaluation and other situations." Walsh said.
But he emphasized that coordination does not mean that the central bank can completely compromise independence or professional judgment, otherwise the loss of credit will eventually cost it.
This year the Fed has expanded its balance sheet by nearly US$4 trillion, and the agency expects that the US Treasury Department will issue US$4.4 trillion in treasury bonds. This is still excluding additional stimulus.
Walsh believes that this kind of coordination is not a "black box operation." The participating institutions must have sufficient credibility, and at the same time they need to do some operations that are beneficial to the medium and long-term, not just confined to the immediate situation.
"We must fully understand the independence of monetary policy. The central bank must clearly know what it is going to do, and when it comes to appointing relevant financial institutions to carry out asset purchase operations on behalf of the central bank, they must pay attention to their credibility." He said.
BIS Borio: The central bank should maintain credibility and pay attention to corporate debt restructuring
Claudio Borio, Director of the Monetary and Economic Department of the Bank for International Settlements (BIS), believes that the crisis will last longer than expected. Therefore, how to deal with corporate bankruptcy and debt restructuring in the future will need to be raised. attention.
Borio mentioned that in the first stage of the epidemic, the coordination of fiscal and monetary policies provided the market with timely liquidity, helped companies avoid bankruptcy, and also lowered the financing costs of financial markets. However, it is clear that the epidemic is still raging around the world. This is no longer enough.
"So I'm going to discuss the bankruptcy stage. The most important thing is how to deal with bankruptcy. For example, tourism and aviation are potential bankruptcies. We need to see which companies can continue and which cannot and which can carry debts. For restructuring, we must provide support to labor-productive industries or enterprises.” In the next stage, BIS believes that support measures should be shifted from a package plan to more precise support. At this stage, the role of the central bank is limited and fiscal policy should be shouldered. Important task.
Borio said that the coordination of fiscal and monetary policies has achieved initial results, but the real test has yet to come.
For example, sometimes the compensation that the financial side hopes to make will result in large or very unreasonable losses, but the central bank is difficult to reverse the situation, which in turn may affect the independence of the central bank; sometimes the central bank raises interest rates to make room for monetary policy in the medium and long term. However, given the high level of government debt, the government may pressure the central bank to keep interest rates low and reduce financing costs.
"At this time, the central bank needs to adhere to its mission and dare to fight. Only a credible central bank can take necessary measures when necessary and bring long-term beneficial effects."
Zhang Xiaohui, Wudaokou, Tsinghua University: Deepen the government bond market to strengthen synergy
His eyes turned to China.
Zhang Xiaohui, dean of the Wudaokou School of Finance at Tsinghua University and a senior researcher at the China Finance Forty Forum, believes that the synergy between China’s fiscal and monetary policies is generally better, whether it is during the Asian financial crisis, the period of the stock reform of state-owned commercial banks or this year. At the beginning of the outbreak.
Therefore, on this basis, the government bond market can be further deepened to further strengthen the coordination of the two policies.
Compared with mature markets, Zhang Xiaohui believes that China still has a big gap in terms of market size, transaction activity or the application of the treasury bond yield curve. There are several points worthy of serious consideration.
First of all, the current Ministry of Finance tends to consider more the pressure of debt repayment in terms of the issuance period of treasury bonds, but not enough attention to the balance of the issuance period structure.
Generally speaking, the Ministry of Finance prefers the issuance of medium and long-term treasury bonds, which may lead to a mismatch between the issuance of government bonds and the pace of fiscal investment, which may also cause a liquidity shock.
At present, China’s short-term treasury bonds account for a relatively low proportion, and the proportion of medium-term treasury bonds is relatively high. Taking the treasury bonds issued last year as an example, short-term varieties within one year and less than one year account for 24.5%, and medium-term varieties within 2-10 years account for 64.4%. Long-term varieties of more than 10 years accounted for 11.1%. In contrast, the maturity distribution of US Treasury bonds is relatively even.
In the future, in addition to rationally arranging the period and frequency of national debt issuance, publicizing fiscal revenue and expenditure and bond issuance plans, and making trading information public to help increase transparency, China should also attach importance to the construction of financial market mechanisms and steadily develop national debt repurchases, futures, and options. Market, and improve the market maker system.
Secondly, Zhang Xiaohui mentioned that the central bank is responsible for managing the treasury, so it is often possible to make comprehensive contact and timely monitoring of the operating status of fiscal funds. Therefore, we can learn from the experience of the United States and let the central bank arrange bonds according to market conditions and the state of the treasury. The issuance plan, including the issuance rhythm and maturity varieties, so as to avoid interference and impact on monetary policy.
In addition, the issue of the local bond issuance mechanism also needs to be further clarified.
Zhang Xiaohui stated that local government bonds are divided into general bonds and special bonds in China. General bonds are issued on behalf of the city and county governments. The provincial government is responsible for issuing bonds on behalf of the city and county governments, and the government actually spends the money. Reflecting the principle of who spends the money who raises the debt and who is responsible, implicitly redemption and moral hazard.
"Since it is issued on behalf of others, why not convert all general debts into national debts? This can also change the problem of the imbalance between national debt and local debt."
She also mentioned that another issue is the correspondence between the funds raised by the local government's special debt and the project.
Local governments often start to raise special debts before the projects are ready, so the phenomenon of "funds and other projects" is prominent.
At the same time, the centralized issuance of local government bonds has increased the concentration of bondholders, which will reduce market liquidity and increase the difficulty of future bond issuance.
"Coordination of monetary and fiscal policies can further smooth the pace of government bond issuance, and the use of monetary policy tools should also fully consider advances to ensure the stability of market interest rates."
Liu Shangxi from the Institute of Finance: Discussion on Fiscal and Currency Coordination from the Perspective of Seigniorage
On May 12 this year, that is, before the "two sessions", Liu Shangxi, president of the Chinese Academy of Fiscal Sciences, first proposed that "deficit monetization is a reasonable choice for the current fiscal and monetary policy combination", which aroused heated discussions among the industry.
It can be seen from the central bank's balance sheet in recent months that the central bank clearly has reservations about this option.
This time, Liu Shangxi discussed the coordination of fiscal and monetary policies from the perspective of seigniorage.
He believes that the increase in the amount of money that meets the needs of economic and social development can be simply defined as seigniorage.
"It has nothing to do with inflation, because as long as the currency is not over-issued, it will not cause inflation under normal circumstances. On the contrary, the scale of goods and services expands, but the currency does not increase accordingly, which will lead to deflation. As long as the economy does not shrink , Then money is always growing, and the incremental part of this expanded stock is actually seigniorage."
Liu Shangxi believes that there is also a currency issue involved.
"Now more money is released through the open market operations of the central bank, but there is almost no way to put money through treasury bonds, because judging from the central bank’s balance sheet, the proportion of treasury bonds now accounts for only a little more than four percent, which is comparable to mature markets. This proportion is quite low. Therefore, seigniorage is not transferred to fiscal use through treasury bonds, but transferred to commercial banks or the market. The distribution effect brought by this is that the part that originally belonged to the state’s income has become The impact of this distribution of market revenue is considerable."
In his view, we are in a high-risk environment full of uncertainty. How can we release the potential of fiscal and monetary policies without causing side effects (such as inflation)?
In this sense, Liu Shangxi believes that the issue of seigniorage should be reconsidered and included in the field of coordination of fiscal and monetary policies.
Essence Securities Gao Shanwen: Provide stronger support for specific groups affected by the epidemic
Gao Shanwen, chief economist of Essence Securities, suggested that subsequent monetary and fiscal policies should focus on supporting specific groups and industries that are more severely affected by the epidemic, and provide a stronger social safety net.
He said that under the impact of the epidemic, different income groups were affected by the epidemic to different degrees. Compared with the low-income group, the wealth of the high-income group recovered faster after the epidemic and significantly exceeded the level before the epidemic. The rise in asset prices under easing is not unrelated.
In sharp contrast, a large number of low-income groups have difficulty benefiting from the increase in capital prices brought about by loose monetary policies, and their income and consumption growth has been significantly slower than before the epidemic.
Gao Shanwen said that the impact of the epidemic on economic activities is mainly concentrated in the service industry, aviation, tourism, catering, offline retail and other fields, and a large number of low-income people are relatively concentrated in these fields for employment, so their living conditions and income And consumption have been more severely impacted, thus hindering the further recovery of economic activities.
Author: 4. Alina Cho