It's not quite the old regime yet, because PBOC has used MLFs this year for net injections.
The Chinese central bank originally only accepted government bonds, central bank bills, China Development Bank and policy financial bonds, local government bonds, and AAA-rated corporate bonds as collateral for MLF.
In June 2018, PBOC expanded the scope of collateral to include:
1. SME, green, and "agriculture, rural areas, and farmers" financial bonds with a rating of AA or higher;
2. AA+ and AA-rated corporate debt, including corporate bonds, medium-term notes, and short-term financing bills;
3. High-quality SME loans and green loans.
PBOC officials said the goal here is to guide Chinese financial institutions to increase their lending to SMEs and the green economy, as well as to promote the development of the corporate bond market.
We also have fans of the Wasp Factory and modern Scottish science fiction amongst our staff.
Thanks, if the PBOC was already accepting government bonds as collateral for MLF lending, then it is already very similar to what Western central banks do. Lending against government bonds as collateral is not very different from buying government bonds; releasing government bonds as collateral is not so different from selling government bonds.
One might even say that by engaging in "quantitative easing", Western central banks were following a path pioneered by the PBoC in expanding the range of collateral that the Western central bank acquires when expanding money supply. As I understand it, there are even proposals that Western central banks could stipulate a minimum cash reserve ratio, which is something the PBoC has been doing for a long time already.
Am I right? Maybe in a future post, you could comment on how Western central banks (and prudential regulators) and the PBoC seem to be converging in how monetary policy (and prudential policy) is conducted.
Thanks, more of this please! Under the old regime (medium term lending), what assets did the the PBOC lend against as security?
Thanks for the kind remarks - we'll do our best.
It's not quite the old regime yet, because PBOC has used MLFs this year for net injections.
The Chinese central bank originally only accepted government bonds, central bank bills, China Development Bank and policy financial bonds, local government bonds, and AAA-rated corporate bonds as collateral for MLF.
In June 2018, PBOC expanded the scope of collateral to include:
1. SME, green, and "agriculture, rural areas, and farmers" financial bonds with a rating of AA or higher;
2. AA+ and AA-rated corporate debt, including corporate bonds, medium-term notes, and short-term financing bills;
3. High-quality SME loans and green loans.
PBOC officials said the goal here is to guide Chinese financial institutions to increase their lending to SMEs and the green economy, as well as to promote the development of the corporate bond market.
We also have fans of the Wasp Factory and modern Scottish science fiction amongst our staff.
Thanks, if the PBOC was already accepting government bonds as collateral for MLF lending, then it is already very similar to what Western central banks do. Lending against government bonds as collateral is not very different from buying government bonds; releasing government bonds as collateral is not so different from selling government bonds.
One might even say that by engaging in "quantitative easing", Western central banks were following a path pioneered by the PBoC in expanding the range of collateral that the Western central bank acquires when expanding money supply. As I understand it, there are even proposals that Western central banks could stipulate a minimum cash reserve ratio, which is something the PBoC has been doing for a long time already.
Am I right? Maybe in a future post, you could comment on how Western central banks (and prudential regulators) and the PBoC seem to be converging in how monetary policy (and prudential policy) is conducted.