The People’s Bank of China: Monetary Policy in a Time of Transition


by iMFdirect

Today at the IMF, the Governor of the People’s Bank of China, Zhou Xiaochuan, gave the Michel Camdessus Central Banking Lecture in Washington, D.C.

With China’s economy undergoing a transition, Governor Zhou spoke about managing monetary policy with multiple objectives, and the independence of central banks.

“For central banks with a single objective, it is relatively easy to be independent. However, if a central bank has multiple objectives, it may be harder to be immune from the political reality.”

Zhou also discussed the role of central banks in economies undergoing a transition to a market economy.

“If central banks do not promote financial reforms or development of financial markets, there would be no healthy financial institutions or market mechanisms, let alone smooth transmission of monetary policy. Furthermore, like other emerging market economies, transition economies have a low level of development and hoped to make up for the ‘lost decades’.”

You can watch Governor Zhou’s speech and his discussion with IMF Managing Director Christine Lagarde.

PBOC pic

A Marriage Made in Heaven or Hell: Monetary and Financial Stability


By José Viñals

Monetary stability seems almost a given today, even taken for granted. It wasn’t always like that. Not so long ago, high and volatile inflation routinely raised its ugly head and threatened living standards. Some of us even remember those days! It wasn’t pleasant. But since then, an effective antidote has pretty much wiped out rampant price instability. Over the past three decades, better monetary frameworks have caused the level and volatility of inflation to fall sharply. These frameworks enshrined price stability as the main monetary policy objective, and provided independence and constrained discretion in the pursuit of this objective, often set out through formal inflation targets.

As I said, it worked out well. Or did it? In reality, there was a gaping hole in the system. While monetary policy frameworks fortified the castle against inflation at the front, they didn’t pay much attention to back door vulnerabilities. I’m talking about financial stability.

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