Abstract: As one of central bank’s open market operations, considering relevant operations that China’s central bank (The People’s Bank of China, PBOC) has conducted, central bank trading government bonds in open market, which is also an internationally recognized tool in the monetary policy toolbox of central banks around the world, is the application of an existing tool in a new context. The recent decision by China’s central bank to initiate trading of government bonds in the open market, taking abroad situation into comparison with it, is the use of existing tools in liquidity management and the monetary policy toolbox, which is distinct from quantitative easing (QE) measures adopted by central banks overseas.
Looking ahead, it is expected that when the government bond is issued at large scale and stable pace, the central bank will trade government bonds, influencing in six aspects: stabilizing market liquidity to enhance the central bank’s management ability of market expectations; potentially smoothing the transmission mechanism of interest rates to shorten the transmission route of monetary policies; enriching the monetary policy toolbox to improve the efficiency of fund supply; improving the guidance for the bond yield curve and facilitating intertemporal investment and financing decisions of microeconomic entities; strengthening the coordination between monetary policy and fiscal policy, and further promoting the high-level opening-up of the bond market.
