China's central bank: the spillover effect of loose foreign monetary policy is worthy of attention

  China News Service, Beijing, February 9th (Reporter Wei Xi) On the evening of the 8th, the People's Bank of China released the "Report on China's Monetary Policy Implementation in the Fourth Quarter of 2020", in which a column reminds us to pay attention to the spillover effects of major countries' monetary policies.

  The Central Bank of China reported that since March 2020, in response to the impact of the epidemic on economic operations and financial markets, the central banks of major economies such as the United States, Europe, and Japan have introduced large-scale monetary stimulus measures.

In 2020, the balance sheets of the Federal Reserve, the European Central Bank, and the Bank of Japan expanded by 77%, 50%, and 23%, respectively, and global liquidity is extremely abundant.

  The report pointed out that the spillover effects of foreign loose monetary policy are worthy of attention.

Generally speaking, when major central banks implement easing policies, their domestic liquidity will leak overseas.

However, in the past, the turmoil in the international financial market during the crisis easily caused market panic, leading to the return of funds to major developed economies for the purpose of hedging, which to a certain extent alleviated the impact of capital leakage on policy effects.

  In this response to the impact of the new crown pneumonia epidemic, the scale of global liquidity returning to major developed economies has decreased.

For example, in 2008, when the international financial crisis broke out, the proportion of foreign holdings of U.S. Treasury bonds increased by 3.3%, while in the first 11 months of 2020, the proportion of foreign holdings of U.S. Treasury bonds fell by 3.8%.

In comparison, China is in a good situation, taking the lead in controlling the epidemic, resuming work and production, and taking the lead in realizing positive economic growth. In 2020, foreign funds will flow into the Chinese bond market to exceed RMB 1 trillion, and more than 60% will be long-term funds of foreign central banks. The main varieties are national debt and policy financial debt.

  "Of course, in the long run, as the epidemic is under control and the economic recovery trend is clear, central banks' loose monetary policies in major economies may withdraw, and the direction of capital flows may also change at that time. This is for a super-large economy like China. Normal, but we must also guard against related risks."

  The report pointed out that China is already the world's second largest economy, and its real contribution to world economic growth has averaged about 30% in the past 10 years. Macro policy spillover effects have appeared, and it is no longer simply a passive recipient of the macro policy spillover effects of developed economies.

China's economy will grow by 2.3% in 2020, and it will be the only major economy to achieve positive economic growth. This will help drive the recovery of the global economy, and in turn will help other major economies to resume the normalization of their monetary policies in the future.