Chinese Monetary Policy Undergoes Big Shift

China’s central bank engineered a quiet revolution in monetary policy last year, newly released data have shown, as authorities invented tools to grow the money supply in response to a dramatic fall in capital inflows.

For most of the past decade, the People’s Bank of China’s main challenge was to sterilize huge inflows of foreign exchange in order to prevent runaway money growth. Its task now is the opposite: find new ways to inject funds to fill the gap as huge inflows turn to moderate outflows.

The PBoC’s latest monetary policy report shows that base money creation through central bank purchases of foreign exchange fell to Rmb640 billion last year, a decrease of Rmb2.1 trillion from 2013.


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