Instability in the worm dollar standard, as most recently manifested in the US Federal Reserve＇s near-zero interest rate policy, has caused consternation in emerging markets with naturally higher interest rates. Chin...Instability in the worm dollar standard, as most recently manifested in the US Federal Reserve＇s near-zero interest rate policy, has caused consternation in emerging markets with naturally higher interest rates. China has been provoked into speeding RMB ＂internationalization ＂; that is, opening up domestic financial markets to reduce its dependence on the US dollar for invoicing trade and making international payments. However, despite rapid percentage growth in offshore financial markets in RMB, the Chinese authorities are essentially trapped into maintaining exchange controls （reinforced by financial repression in domestic interest rates） to avoid an avalanche of foreign capital inflows that would threaten inflation and asset price bubbles by driving nominal interest rates on RMB assets down further. Because a floating （appreciating） exchange rate could attract even more hot money inflows, the People＇s Bank of China should focus on keeping the yuan/dollar rate stable so as to encourage naturally high wage increases to help balance China ＂s international competitiveness. However, further internationalization of the RMB, as with the proposed Shanghai pilot free trade zone, is best deferred until world interest rates rise to more normal levels.展开更多
This paper attempts to explain why sterilized intervention was so successful and sustainable in China during the first decade of the 21st century. We argue that the Chinese Government established a sterilization cost-...This paper attempts to explain why sterilized intervention was so successful and sustainable in China during the first decade of the 21st century. We argue that the Chinese Government established a sterilization cost-sharing mechanism among the Peoples Bank of China, commercial banks and the househoM sector. On the one hand, Chinese commercial banks have to assume some of the sterilization costs bypurchasing low yield central bank bills and maintaining high levels of required reserves. On the other hand, Chinese households assume some of the sterilization costs by bearing negative real deposit interest rates. The cost- sharing mechanism under financial repression prevents a huge quasi-fiscal loss by the Peoples Bank of China as well as high inflation. However, Chinese households have become victims of this financial repression. Faced with the pressure of changing the growth model from investment-driven to domestic consumption-driven, the interest rate will have to be liberalized eventually, which will, in turn, make sterilized intervention unsustainable.展开更多
Financial repression usually exists in developing countries. By nature, it as like a hidden tax and can liquidate public debt of the government effectively. The policy of financial repression will likely hinder financ...Financial repression usually exists in developing countries. By nature, it as like a hidden tax and can liquidate public debt of the government effectively. The policy of financial repression will likely hinder financial deepening, negatively influence the building-up of efficient and inclusive financial systems, and eventually harm sustainable economic growth in the long run. The fine legal infrastructure plays an important role in financial deepening and development. In China the major measures to reduce financial repression and improve the legal governance in finance are the following： the strict respect and protection of private property rights, including the obligation rights of the common depositors against the banks and the shareholders＇ rights of the common investors, the respect and protection of the contract freedom and contract enforcement, the sequential openness of financial market entry and introduction of the principle of free and equal competition in the financial market, and the improvement of the judicial system to increase the adaptability of Chinese law, such as the strengthening of judicial independence and the establishment of case law.展开更多
Under near-zero US interest rates, the international dollar standard malfunctions. Emerging markets with naturally higher interest rates are swamped with hot money inflows. Emerging market central banks intervene to p...Under near-zero US interest rates, the international dollar standard malfunctions. Emerging markets with naturally higher interest rates are swamped with hot money inflows. Emerging market central banks intervene to prevent their currencies from rising precipitately. They lose monetary control and domestic prices begin inflating. Primary commodity prices rise worldwide unless interrupted by an international banking crisis＇. This cyclical inflation on the dollar＇s periphery only registers in the US core eonsumer price index with a long lag. The zero interest rate policy also fails to stimulate the US economy as domestic finaneial intermediation by banks and money market mutual funds is repressed. Because China is forced to keep its interest rates below market-clearing levels, it also suffers from finaneial repression, although in a form differing from that in the USA.展开更多
This paper examines the effects of China's accelerated depreciation policy(ADP)on the maturity mismatch between investment and financing.Using panel data for China's A-share nonfinancial listed companies from ...This paper examines the effects of China's accelerated depreciation policy(ADP)on the maturity mismatch between investment and financing.Using panel data for China's A-share nonfinancial listed companies from 2010 to 2019 and a staggered difference-in-differences approach,we found the following.First,ADP significantly aggravated the degree of corporate maturity mismatch,and this result was robust across multiple checks.Second,due to an insufficient long-term loan supply,firms had to finance the fixed investments induced by ADP with short-term debts,leading to maturity mismatches.Third,the positive policy effects were mainly significant for firms with high policy exposure,high-risk preferences,a high degree of information asymmetry,and firms with weak long-term financing capacity.Finally,maturity mismatch exacerbated corporate financial risks.Our research findings indicate that passive maturity mismatch is prevalent among Chinese companies and emphasize the need to address financial repression in order to mitigate the potential financial risks that may arise from tax incentives.展开更多
文摘Instability in the worm dollar standard, as most recently manifested in the US Federal Reserve＇s near-zero interest rate policy, has caused consternation in emerging markets with naturally higher interest rates. China has been provoked into speeding RMB ＂internationalization ＂; that is, opening up domestic financial markets to reduce its dependence on the US dollar for invoicing trade and making international payments. However, despite rapid percentage growth in offshore financial markets in RMB, the Chinese authorities are essentially trapped into maintaining exchange controls （reinforced by financial repression in domestic interest rates） to avoid an avalanche of foreign capital inflows that would threaten inflation and asset price bubbles by driving nominal interest rates on RMB assets down further. Because a floating （appreciating） exchange rate could attract even more hot money inflows, the People＇s Bank of China should focus on keeping the yuan/dollar rate stable so as to encourage naturally high wage increases to help balance China ＂s international competitiveness. However, further internationalization of the RMB, as with the proposed Shanghai pilot free trade zone, is best deferred until world interest rates rise to more normal levels.
基金financial support from the project "China's Short-term Capital Flows:Scale,Pulling Factors and Impacts," sponsored by the Chinese Academy of Social Sciences
文摘This paper attempts to explain why sterilized intervention was so successful and sustainable in China during the first decade of the 21st century. We argue that the Chinese Government established a sterilization cost-sharing mechanism among the Peoples Bank of China, commercial banks and the househoM sector. On the one hand, Chinese commercial banks have to assume some of the sterilization costs bypurchasing low yield central bank bills and maintaining high levels of required reserves. On the other hand, Chinese households assume some of the sterilization costs by bearing negative real deposit interest rates. The cost- sharing mechanism under financial repression prevents a huge quasi-fiscal loss by the Peoples Bank of China as well as high inflation. However, Chinese households have become victims of this financial repression. Faced with the pressure of changing the growth model from investment-driven to domestic consumption-driven, the interest rate will have to be liberalized eventually, which will, in turn, make sterilized intervention unsustainable.
文摘Financial repression usually exists in developing countries. By nature, it as like a hidden tax and can liquidate public debt of the government effectively. The policy of financial repression will likely hinder financial deepening, negatively influence the building-up of efficient and inclusive financial systems, and eventually harm sustainable economic growth in the long run. The fine legal infrastructure plays an important role in financial deepening and development. In China the major measures to reduce financial repression and improve the legal governance in finance are the following： the strict respect and protection of private property rights, including the obligation rights of the common depositors against the banks and the shareholders＇ rights of the common investors, the respect and protection of the contract freedom and contract enforcement, the sequential openness of financial market entry and introduction of the principle of free and equal competition in the financial market, and the improvement of the judicial system to increase the adaptability of Chinese law, such as the strengthening of judicial independence and the establishment of case law.
文摘Under near-zero US interest rates, the international dollar standard malfunctions. Emerging markets with naturally higher interest rates are swamped with hot money inflows. Emerging market central banks intervene to prevent their currencies from rising precipitately. They lose monetary control and domestic prices begin inflating. Primary commodity prices rise worldwide unless interrupted by an international banking crisis＇. This cyclical inflation on the dollar＇s periphery only registers in the US core eonsumer price index with a long lag. The zero interest rate policy also fails to stimulate the US economy as domestic finaneial intermediation by banks and money market mutual funds is repressed. Because China is forced to keep its interest rates below market-clearing levels, it also suffers from finaneial repression, although in a form differing from that in the USA.
基金supported financially by the National Natural Science Foundation of China for financial support (Nos.101302-N11502 and 72002175)the China Scholarship Council (No.202206320139)。
文摘This paper examines the effects of China's accelerated depreciation policy(ADP)on the maturity mismatch between investment and financing.Using panel data for China's A-share nonfinancial listed companies from 2010 to 2019 and a staggered difference-in-differences approach,we found the following.First,ADP significantly aggravated the degree of corporate maturity mismatch,and this result was robust across multiple checks.Second,due to an insufficient long-term loan supply,firms had to finance the fixed investments induced by ADP with short-term debts,leading to maturity mismatches.Third,the positive policy effects were mainly significant for firms with high policy exposure,high-risk preferences,a high degree of information asymmetry,and firms with weak long-term financing capacity.Finally,maturity mismatch exacerbated corporate financial risks.Our research findings indicate that passive maturity mismatch is prevalent among Chinese companies and emphasize the need to address financial repression in order to mitigate the potential financial risks that may arise from tax incentives.
