Where do we start to build a modern central bank system?
Our reporter Chen Guojing
The 53rd meeting of the Financial Stability and Development Committee of the State Council pointed out that, at present and for a period of time in the future, it is necessary to follow the requirements of high-quality development, with supply-side structural reform as the main line, and strengthen the strategic, forward-looking, basic and targeted financial sector. Study of the problem.
The meeting raised nine major issues, the first of which is to establish a modern central bank system.
What are the contents of the modern central bank system, and where should we start to build a modern central bank system?
Focusing on these issues, the reporter interviewed Hu Bin, vice chairman of the National Finance and Development Laboratory of the Chinese Academy of Social Sciences.
Inherent needs and basic guarantees for high-quality development
Reporter: Why did the 53rd meeting of the Financial Committee emphasize the establishment of a modern central bank system again?
Hu Bin: The current emphasis on the establishment of a modern central bank system is of great historical significance.
Finance is the core of the market economy, and the modern central bank system is the basic guarantee for effective management of monetary finance.
In the new stage of development from building a well-off society in an all-round way to building a socialist modern country in an all-round way, the role of finance in resource allocation will be more clear.
The establishment and improvement of a modern central bank system can better optimize the role of the financial system in the conversion of savings and investment and the functioning of market economy. The establishment of a modern central bank system is an inherent need and basic guarantee for promoting high-quality development.
The modern central bank system has always been a major basic reform task, and also a major task to promote the modernization of the national governance system and governance capabilities.
The further deepening of the construction of the modern central bank system will provide a more solid institutional guarantee for the high-quality development of the Chinese economy, and escort the implementation of the "14th Five-Year Plan" and the "two-stage" development goals.
The Fourth Plenary Session of the Nineteenth Central Committee of the Communist Party of China required the establishment of a modern central bank system, perfecting the mechanism for issuing base money, and improving the benchmark interest rate and market-based interest rate system.
The Fifth Plenary Session of the 19th Central Committee of the Party called for comprehensively deepening reforms and building a high-level socialist market economy system.
From the perspective of establishing a modern fiscal, taxation and financial system, it is required to build a modern central bank system, improve the money supply control mechanism, steadily promote digital currency research and development, and improve the market-based interest rate formation mechanism and transmission mechanism.
The "14th Five-Year Plan" also emphasizes the construction of a modern central bank system and the improvement of the money supply control mechanism.
Recently, the 53rd meeting of the Financial Committee proposed to strengthen the research on strategic, forward-looking, basic and pertinent issues in the financial field, and promote the establishment of a modern central bank system.
As an important measure to implement the spirit of the Fourth and Fifth Plenary Sessions of the 19th Central Committee of the Communist Party of China, the "14th Five-Year Plan" and the spirit of General Secretary Xi Jinping's "July 1" speech, under the leadership of the Financial Committee, the construction of a modern central bank system will Speed up.
During the "14th Five-Year Plan" period, in the new development pattern with the domestic cycle as the main body and the domestic and international dual cycles mutually promoting each other, the modern central bank system is a major institutional requirement for smoothing the domestic cycle.
At the same time, amidst major changes unseen in a century, we should improve the modern central bank system, manage the currency gates, improve the money supply control mechanism, provide high-quality financial infrastructure services, prevent and control systemic financial risks, and control external spillover effects. A major institutional guarantee for the stable development of the monetary and financial system, effectively guaranteeing high-quality economic development, and speeding up the construction of a new development pattern.
Focus on achieving four policy goals
Reporter: The modern central bank system is rich in connotation and covers a wide range of areas. What do you think is the key?
Hu Bin: The modern central bank system is the sum of the modern monetary policy framework, financial infrastructure service system, systemic financial risk prevention and control system, and international financial coordination and cooperation governance mechanism. The content involved is indeed very extensive. The construction of a modern central bank system is a whole Major system engineering.
The construction of a modern central bank system should closely focus on the three major tasks of serving the real economy, preventing and controlling financial risks, and deepening financial reforms, focusing on achieving four policy goals: currency stability, full employment, financial stability, and balance of payments.
Correspondingly, there are four key points in the construction of a modern central bank system:
First, the primary task of building a modern central bank system is to improve the monetary policy framework and ensure currency stability.
Price stability is the core task of the central bank and the basic goal of monetary policy.
However, after the international financial crisis, the most important challenge to the monetary policy framework is the "failure" of monetarism.
Going back to the reform of China's monetary policy framework, does monetarism still apply?
Which indicator does price stability focus on?
Is China's economy continuing to be in the process of monetization?
For the construction of the modern central bank system, these are very basic issues.
Second, how can the modern central bank system better guarantee full employment?
Over the past decade or so, the status and role of full employment in the monetary policy target system has been significantly improved.
In August 2020, the Fed’s policy framework shifted to an average inflation target system. The most significant change is that the Fed will implement inter-period and compensation strategies to enable the United States to achieve “re-inflation”, thereby filling the employment gap and making monetary policy more effective. Promote full employment well.
Against the background of the impact of the new crown pneumonia epidemic and the deepening of structural transformation, China's economy is also facing greater growth pressure and unemployment gap. How monetary policy can assume more job security functions is another focus of the construction of the central bank's system.
Third, how does the modern central bank system weigh the relationship between price stability and financial stability.
This is an old question, but since the international financial crisis, there have been many discussions in the academic circles, and major reforms have been carried out in the policy circles. A basic trend is that financial stability is one of the basic functions of modern central banks that need to be strengthened.
As far as China is concerned, the central bank’s greater financial stability function is carried out in a coordinated manner with monetary policy.
The third major task of the modern central bank system is to construct a dual-pillar policy framework for monetary policy and macro-prudence.
However, the current international macroprudential policy tools such as countercyclical capital buffers, systemically important buffers, and liquidity requirements are showing a microscopic trend.
How to effectively coordinate monetary policy and macro-prudence, there is still huge room for reform and improvement in terms of policy frameworks, policy tools, and organizational arrangements.
Fourth, how can the modern central bank system effectively guarantee the balance of international payments.
The importance of the balance of payments in the new development pattern is further highlighted.
In the new development pattern where the domestic and international double cycles are the main body and the domestic and international double cycles are mutually promoted, the balance of payments is the core link between the two internal and external cycles. Maintaining a basic balance of international payments is critical to achieving the double cycle.
Speed up the three tasks
Reporter: Where should we start to build this major system project?
What are the current shortcomings that need to be optimized?
Hu Bin: After years of reform and development, my country's modern central bank system has made significant progress, providing an important guarantee for the steady development of China's economy and finance.
In order to better serve the high-quality development of the economy, to better serve the new development pattern, and to better respond to major changes unseen in a century, the construction of the modern central bank system needs to be optimized in the following aspects.
First, further improve the framework of the modern central bank system.
Since my country’s modern central bank system is committed to achieving the four policy goals of currency stability, full employment, financial stability, and balance of payments, according to the principle of matching objectives and tools, the modern central bank system also needs to innovatively construct diversified policy tools. , The whole may be a "multi-objective, multi-tool" policy framework.
For example, how to improve the benchmark interest rate system is a very basic task. Using interest rates that have not changed for several years or months as an "anchor" for market pricing may be more difficult to perform as a price signal.
Second, the construction of a modern central bank system must be carried out under the framework of the rule of law.
The statutory responsibilities of the central bank must be clarified through system construction, and the construction of a modern central bank system must be carried out in an orderly manner under the framework of the rule of law.
On the one hand, the statutory responsibilities of the central bank should be clearly defined through the improvement of the People’s Bank of China Law, so that the central bank’s policy boundaries can be clarified. In particular, it is necessary to clarify the central bank’s status, roles, responsibilities and functions in monetary policy, financial stability, and financial supervision. On the other hand, the central bank needs to deepen its own function construction under the legal system of the People’s Bank of China, such as how to coordinate the supervision and management power of the central bank and the industry supervisory authority.
Third, the modern central bank system needs to focus on the overall coordination of monetary policy and fiscal policy.
Recently, modern monetary theory has been widely and profoundly discussed in the academic and policy circles. “Unconventional” monetary policies such as quantitative easing, zero interest rate and even negative interest rates are showing a trend of “routineization”. Among these, the most important issue is fiscal policy and The coordination of monetary policy.
To a certain extent, the quantitative easing policy is a disguised form of financing for the fiscal deficit by the monetary authorities.
Whether this policy framework is suitable for China and how to effectively coordinate monetary and fiscal policies is an important task for the construction of a modern central bank system in the future, and it is also an area that urgently needs to be clarified.
In view of this, the construction of a modern central bank system urgently needs to accelerate the following three tasks: First, take the revision of the People’s Bank of China as an opportunity to clearly define the status, roles, responsibilities and powers of the central bank, clarify the central bank’s policy framework and policy tools, and improve Promote the high-quality development of my country's financial industry, improve the quality and efficiency of serving the real economy, and maintain financial stability and security. The second is to deepen the market-based pricing reform of financial factors, remove the system and mechanism barriers that hinder the free flow of factors, focus on promoting interest rate marketization, exchange rate formation mechanism, and the construction of the national debt yield curve, so as to achieve financial factor price market decision, flow independent and orderly, and efficient allocation fair. The third is to establish a sound monetary policy and fiscal policy coordination mechanism. Through the establishment of a sound modern fiscal system and a modern central bank system, the monetary policy and fiscal policy are effectively coordinated, and the construction of the treasury bond market is used as a link to strengthen the link mechanism, market system and tools of the two basic policies.