People walk past the headquarters of the People's Bank of China in Beijing. Picture: REUTERS
People walk past the headquarters of the People's Bank of China in Beijing. Picture: REUTERS

Beijing — China will maintain “normal” monetary policy for as long as possible, according to People’s Bank of China (PBOC) governor Yi Gang.

Policymakers plan to encourage a “reasonable” increase in household savings and incomes, Yi wrote in an article published on Saturday in the central bank’s biweekly magazine China Finance. The country will also make sure its liquidity stays ample, and will facilitate reasonable growth of money supply and social financing, while avoiding excess liquidity flooding the economy to reduce fluctuations, he said.

Most of the world’s major economies have rolled out fiscal and monetary measures to counter the effects of the coronavirus pandemic. Yi cautioned that excessive stimulus could lead to debt expansion and create asset bubbles that will increase longer-term systemic risks.

The governor also said financial institutions and their shareholders, local governments and regulators should take prime responsibility in dealing with risks. When unexpected events occur, shareholders at the respective financial institutions should assume the losses, and insolvent institutions should exit the market according to law, he said.

The central bank said in September it will make monetary policy more precise and targeted after the quarterly policy meeting. The PBOC called on lenders to make full use of structured monetary tools to increase the “directness” of its policies, and vowed to achieve a long-term balance between stabilising growth and preventing risks.

The governor’s deputy, Chen Yulu, wrote in a separate article in the magazine that the bank will prevent inflation, debt expansion and asset bubbles from forming as a result of excessive liquidity. Such funds are meant to support economic growth.

Chen also wrote that China should increase financial support to the new-energy sector, including helping firms in the industry expand overseas.

The PBOC will accelerate the digital currency’s research and trial usage in a controllable manner while ensuring payment security, according to Chen. No timetable was given.

Bloomberg

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