Monetary and Fiscal Operations in the People’s Republic of China: An Alternative View of the Options Available

Date: October 2013
Type: Papers and Briefs
Country:
Subject:
Series: Economics Working Papers
ISSN: 1655-5252 (print)
Author: Wray, L. Randall; Fernandez Lommen, Yolanda

Description

This paper examines the fiscal and monetary policy options available to the People’s Republic of China (PRC) as a sovereign currency-issuing nation operating in a dollar standard world. The paper first summarizes a number of issues facing the PRC, including the possibility of slower growth and a number of domestic imbalances. Then, it analyzes current monetary and fiscal policy formation and examines some policy recommendations that have been advanced to deal with current areas of concern. The paper outlines the sovereign currency approach and uses it to analyze those concerns. Against this background, it is recommended that the central government’s fiscal stance should be gradually relaxed so that local government and corporate budgets can be tightened. By loosening the central government’s budget but tightening local government and corporate budgets at a measured pace, the PRC can avoid depressing growth or sparking excessive inflation.

Contents

  • Abstract
  • Introduction 
  • Background and Context for the Analysis
  • Main Policy Challenges
  • Budget Deficits and Sectoral Balances: Implications for the PRC
  • Policy Options
  • Conclusions
  • References