Xi Jinping to China’s central bank: restart treasury-bond trade, after 2-decade hiatus
- President Xi has told China’s financial cadres that active monetary policy toolkit must include a controversial means of injecting liquidity into the economy
- Economist says PBOC has not bought treasury bonds for years because monetary authorities did not want to fuel market speculation of a major stimulus
It appears to be just a matter of time before China’s central bank pulls out a controversial monetary policy tool that it has not used in more than two decades, following newly publicised instructions from President Xi Jinping.
With the world’s second-largest economy at a critical juncture of fuelling growth in its bid to become a global financial superpower, a new book details some of Xi’s thoughts on finance, dating back to late 2012.
Of particular note are comments that Xi made to financial cadres during China’s twice-a-decade central financial work conference on October 30.
“It is necessary to enrich the monetary policy toolbox,” the snippet reads in Excerpts of Xi Jinping’s Speeches on Finance Work. “The People’s Bank of China must gradually increase the trading of treasury bonds in its open market operations.”
Instructing the central bank to buy more treasury bonds is a rare and unexpected move in China. Sources say this last occurred around the start of the 21st century. After that, when the central bank sought to inject liquidity into the market, it started relying on relending tools and cuts to the reserve requirement ratio – reducing the amount of cash that commercial banks must hold as reserves and releasing large sums of money into the market as long-term liquidity.
