Monetary policy, fiscal policy and public debt management by People’s Bank of China published by BIS (2016).
This paper touches on the interaction between monetary policy, fiscal policy and public debt management. The first part looks at public debt sustainability and monetary policy. When measuring the fiscal stance, data such as current fiscal income and expenditure, the scale of public debt, and the coverage of budget revenue and expenditure should be properly monitored. In addition, factors that could influence the mid-term fiscal stance should be taken into consideration. Central bank assets may not be used to offset public debt, and pension funds are not in practice used to offset gross government debt in most economies. To some extent, oil and commodity stability funds held by resource-abundant economies may be used to offset gross government debt. Monetary policy is influenced by the financing of the fiscal deficit by way of bond issuance. The second part is about the development of money markets, the maturity and yield curves of domestic government bonds, and the deepening of domestic financial markets and financial stability in China. The concluding part concerns the central bank and public debt management. There is no need for the central bank in economies with a well developed treasury bond market to issue debt of its own. In emerging economies, a regular rollover issuance of central bank debt may help to form a consecutive short-term risk-free yield curve, serving as a benchmark for pricing in money and bond markets. Central banks involved in public debt management need to coordinate closely with the debt management agency on the policy objectives for various macro control instruments associated with fiscal policy, monetary policy and public debt management.
