RCIF Working Paper Apr. 23, 2013
China’s Monetary Policy Regime
LIU Dongmin ZHU Zhenxin
Abstract: With China’s economic reform and opening, People’s Bank of China (PBOC) started its own reform. Up to now, PBOC has experienced five stages of its evolution: exploration stage (1978-1992), developing stage (1992-1997), reform stage (1998-2001), relatively mature stage (2001-2009), reform deepening stage (2009- now). Multi-targets decision has been a typical model of China’s monetary policy regime. PBOC will keep multi-targeting decision model in the future. Although China’s money policy has made relatively good performance during the last two decades, PBOC still faces some big challenges. With respect to macroeconomic policy trilemma, China’s government chooses a combination of independent monetary policy, fixed exchange rate system (the “crawling peg” since 2005 was similar to fixed exchange rate) and controls on capital account, thereby resulting in over-accumulation of official foreign reserves, and to some extent, impairing the independence of China’s monetary policy. In the context of RMB internationalization, the capital control also made RMB less attractive to foreign investors. In fact, one of the main purposes that PBOC dedicates itself to promoting RMB internationalization is to force capital account opening, which would also stimulate the liberalization of exchange rate and interest rate at the same time. It is a political wisdom which is called ‘reversed transmission mechanism’ and was once successfully employed in China’s entry of WTO.
Key Words: monetary policy regime, financial reform, internationalization of RMB
1. The Brief History of China's Monetary Policy Regime
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2. Monetary Policy Targets in China
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3. Monetary Policy Transmission Mechanism
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4. The Achievements of China’s Monetary Policy
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5. Challenges and Future Reform of China’s Monetary Policy Regime
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6. A Brief Conclusion
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