When I wrote back in May about IMF proposals for a freer People's Bank of China, I didn't think Chinese officials would be proposing similar reforms only two months later. But it appears they may be, according to a report by the Financial Times' Richard McGregor: China mulls freer hand for central bank
A Chinese central bank official has suggested economic policymaking could be more effective if the institution were free to manage interest rates independent of other ministries and direct central government oversight.
Liu Lida said in a little-reported speech to a conference at the weekend that the ability of the People’s Bank of China to adjust interest rates on its own would make such decision-making more effective and faster.
“Of course, the decision-making mechanism will be more balanced if a decision of the State Council is needed and the opinions of more ministries are taken into account,” said Mr Liu, the head of the monetary policy research department.
“But this may to some also lead to a loss of efficiency; while an immediate adjustment could have very positive impact on the market . . .”
A spokesman for the central bank said Mr Liu’s comments as recorded in the transcript of the conference speech did not accurately represent the bank’s views nor those of Mr Liu himself. However, they do reflect longstanding internal discussion within the central bank and policymaking circles in China about the need to give the PBoC a freer hand in monetary policy, economists in Beijing said.
At the moment, significant monetary policy decisions cannot be taken by the PBoC without the approval of the State Council, China’s cabinet.
“The Chinese system is anachronistic,” said a Beijing-based economist, compared with the central banks of large economies, which had greater autonomy or, in some cases, legislative independence.
The International Monetary Fund, in a staff report last year, said the PBoC needed “more discretion to independently set interest rates”.
“While consultation within the government may be beneficial in building support for an interest rate change, policy actions can be unduly delayed,” it said.
Comments