Learning by doing in market reform: Lessons from a regional bond fund

Local currency bond markets in East Asia and the Pacific have grown impressively since the 1997 Asian crisis, but policy authorities in the region realize they still have some work to do to allow the markets to realise their true potential. Hence, there have been a variety of regional initiatives to develop these markets. One of these initiatives is the Asian Bond Fund II, which was established by 11 central banks in East Asia and the Pacific in 2005. In creating a regional index bond fund and eight single-market funds, the central banks worked together to identify and come up with ways to reduce market impediments in eight local currency bond markets. Moreover, they built into the regional fund's structure an incentive mechanism for reducing impediments further. --

China’s evolving reserve requirements

This paper examines the evolving role of reserve requirements as a policy tool in China. Since 2007, the Chinese central bank (PBC) has relied more on this tool to withdraw domestic liquidity surpluses, as a cheaper substitute for open-market operation instruments in this period of rapid FX accumulation. China’s reserve requirement system has also become more complex and been used to address a range of other policy objectives, not least being macroeconomic management, financial stability and credit policy. The preference for using reserve requirements reflects the size of China’s FX sterilisation task and the associated cost considerations, a quantity-oriented monetary policy framework challenged to reconcile policy dilemmas and tactical considerations. The PBC often finds it easier to reach consensus over reserve requirement decisions than interest rate decisions and enjoys greater discretion in applying this tool. The monetary effects of reserve requirements need to be explored in conjunction with other policy actions and not in isolation. Depending on the policy mix, higher reserve requirements tend to signal a tightening bias, to squeeze excess reserves of banks, to push market interest rates higher, and to help widen net interest spreads, thus tightening domestic monetary conditions. There are, however, costs to using this policy tool, as it imposes a tax burden on Chinese banks that in turn appear to have passed a significant portion of this cost onto their customers, mostly depositors and SMEs. However, the pass-through onto bank customers appears to be partial.reserve requirements; sterilisation tools; monetary policy; net interest margin and spread; tax incidence; Chinese economy

Renminbising China's Foreign Assets

Since the 2008 global financial crisis, China has rolled out a number of initiatives to actively promote the international role of the renminbi and to denominate more of its international claims away from the US dollar and into the renminbi. This paper discusses the factors shaping the prospects of internationalising the renminbi from the perspective of the currency composition of China’s international assets and liabilities. These factors include, among others, underlying valuation and management of the renminbi.renminbi internationalisation, net international asset position, convertibility, exchange rate uncertainty, dollar peg

Developing an underlying inflation gauge for China. Bruegel Working Paper 2014/11, 9 October 2014

This paper develops a new underlying inflation gauge (UIG) for China which differentiates between trend and noise, is available daily and uses a broad set of variables that potentially influence inflation. Its construction follows the works at other major central banks, adopts the methodology of a dynamic factor model that extracts the lower frequency components as developed by Forni et al (2000) and draws on the experience of the People’s Bank of China in modelling inflation