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

  • Wray , L. Randall

    (Asian Development Bank)

  • Fernandez Lommen, Yolanda

    (Asian Development Bank)

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.

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Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 380.

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Length: 27 pages
Date of creation: 15 Oct 2013
Date of revision:
Handle: RePEc:ris:adbewp:0380
Note: http://www.adb.org/sites/default/files/pub/2013/ewp-380.pdf
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  1. Sabrina Auci & Laura Castellucci & Manuela Coromaldi, 2013. "Does cutting back the public sector improve efficiency? Some evidence from 15 European countries," CEIS Research Paper 274, Tor Vergata University, CEIS, revised 30 Apr 2013.
  2. Thomas Herndon & Michael Ash & Robert Pollin, 2013. "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff," Working Papers wp322, Political Economy Research Institute, University of Massachusetts at Amherst.
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