Chinese experience of using monetary policy instruments to stabilize exchange rate and achieve sustainable economic growth

Abstract

Subject. The article deals with monetary policy as part of China's macroeconomic policy. It considers the use of tools of China’s monetary policy to stabilize exchange rate and achieve economic stability. Objectives. The aim is to explore practices and results of using the monetary policy tools in China. Methods. The study employs historical and systems approaches to unveil the relation of effective application of the monetary policy and its impact on macroeconomic indicators. The comparison method enabled to identify aspects of China's monetary policy applicable for Russia’s economy. Results. During 2014–2022, the People's Bank of China actively participated in managing the exchange rate, including through direct interventions, creation of administrative barriers to manage purchase and sale of currency, the use of adjustment factors and various rates. Depending on the global situation and domestic goals, both the liberalization of the currency system and the strengthening of control took place along with a change in the volume of use of these instruments. Interventions through State-owned banks and the use of foreign exchange derivatives, combined with measures to control capital flows, demonstrated a high degree of effectiveness. Conclusions. The study shows that a wide range of tools, together with timely communications from the Central Bank, make it possible to achieve stabilization of exchange rate within a short time, even in the presence of global destabilizing factors. It also emphasizes the need to develop flexible restraining mechanisms and administrative barriers to control capital flows under the volatility of the ruble.