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  • SUMMARIES AND PRESENTATIONS

    This is the official English version. For the Chinese translation please see:

    http://www.imf.org/external/country/chn/rr/chi/whatwedo.htm

    PBC and IMF Joint Conference

    New Issues in Monetary Policy International Experience and

    Relevance for China

    EDITORS Kai Guo and Alfred Schipke

  • New Issues in Monetary Policy: International Experience and Relevance for China

    TABLE OF CONTENTS

    Foreword ................................................................................... i

    YI Gang

    Introduction ............................................................................ iii

    SESSION I: Evolving Monetary Policy Frameworks after the

    Global Financial Crisis............................................................... 1

    Rethinking Monetary Policy in the Aftermath of Global Financial Crisis LI Bo ..................................................................................................... 2

    Beyond Flexible Inflation Targeting: Canadas Experience John Murray ................................................................................................ 4

    The ECBs Monetary Policy Framework Before and After the Crisis Philipp Hartmann ........................................................................................ 8

    Escaping from a Liquidity Trap and Deflation: The Japanese Experience in 1999-2014 Tsutomu Watanabe .................................................................................. 13

    SESSION II: Changing Toolkit of Central Banks ....................... 15

    Chinese Monetary Policy Tools SUN Guofeng ...................................................................................... 16

    Remarks on the Changing Toolkit of Central Banks Arminio Fraga ........................................................................................... 22

    Some Thoughts on the Design of Monetary Policy Strategy and Communications Andrew Levin ............................................................................................. 25

    China's Evolving Monetary Policy Framework WANG Tao ................................................................................................. 28

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    New Issues in Monetary Policy: International Experience and Relevance for China

    SESSION III: Rapidly Changing Financial Systems: Challenges

    for the Coordination of Financial Sector and Monetary Policy

    ................................................................................................ 31

    Central Bank, Monetary Policy and Macro-prudential Supervision WANG Yu ............................................................................................ 32

    Lessons from Israels Monetary Policy Experience Leonardo Leiderman ................................................................................. 36

    Cyclical Macro-Prudential Policies Nellie Liang ................................................................................................ 39

    Rapidly Changing Financial Systems: Challenges for the Coordination of Financial Sector and Monetary Policy Ana Maria Aguilar ..................................................................................... 48

    SESSION IV: Experiences in Moving Toward Market Based

    Policy Instruments ................................................................. 53

    Koreas Experience with Monetary Policy Instruments Woon Gyu Choi ................................................................................... 54

    Moving Toward Market-Based Policy Instruments: The Malaysian Experience Sukudhew (Sukhdave) Singh ...................................................................... 58

    China: Moving Toward Interest Rate Targeting MA Jun ...................................................................................................... 61

    From Direct to Indirect Instruments in Monetary Policy: the European Experience of the 1980s Heinz Herrmann ........................................................................................ 65

    Closing Remarks ..................................................................... 68

    Markus Rodlauer

    Biographies............................................................................. 72

  • 3

    New Issues in Monetary Policy: International Experience and Relevance for China

    Appendix ................................................................................ 90

    Presentations ..................................................................................... 91 Conference Agenda .......................................................................... 237

  • i

    New Issues in Monetary Policy: International Experience and Relevance for China

    FOREWORD

    Y I GANG1

    On behalf of Governor Zhou and the Peoples Bank of China (PBC), I

    would like to welcome everyone to the second joint PBC-IMF conference.

    Last year, the PBC and IMF held a very successful conference on

    capital flow management, during which experts from around the world

    gave some good advice on capital account liberalization in China. Later,

    the third plenum of the 18th Party Congress decided China will promote

    the opening of the capital market in both directions, increase the

    convertibility of cross-border capital and financial transactions in an

    orderly way and accelerate renminbi capital account convertibility. The

    message of last years conference was quite consistent with what China

    ultimately decided to do.

    In the last seven or eight years, we have witnessed the Lehman

    Brothers crisis, the European sovereign debt crisis, and recent turmoil in

    some emerging market economies. Summarizing the lessons from these

    crises and rethinking the framework of monetary policy and macro-

    prudential policy are important, especially for China, a country

    undergoing fast transitions in both its financial system and its overall

    policy framework.

    China is now in a transitional juncture as its financial sector

    landscape has evolved significantly in recent years. First, market access

    for private and foreign participants has been expanded to enhance

    competition and provide a level playing field. Second, the surge of

    shadow banking and internet finance has reshaped finance, attracting

    money out of the traditional system of regulated banks and contributing

    to the formation of more market-based interest rates. All these changes

    1 Yi Gang is Administrator of the State Administration of Foreign Exchange and Deputy

    Governor of the Peoples Bank of China

  • ii

    New Issues in Monetary Policy: International Experience and Relevance for China

    in economic and financial conditions call for further reform tailored to

    the circumstances, especially the evolution of an overall monetary policy

    framework to keep pace with the constant innovation. On the policy side,

    the PBC has increased the flexibility of the renminbi (RMB) exchange rate

    and advanced interest rate liberalization. Efforts are being made toward

    putting in place the infrastructure for adoption of more market-based

    monetary policy tools, such as developing the financial market,

    promoting competition, reinforcing property rights protections, and

    improving corporate governance of financial institutions. We will advance

    the reform program steadfastly according to the Third Plenum Reform

    Blueprint.

    Against this background, todays conference will touch upon many

    important issues related to monetary policy, such as reviewing major

    economies experiences as they moved toward price-based tools,

    discussing challenges for monetary policy frameworks in the wake of the

    global financial crisis, and rethinking the coordination of monetary policy

    and macro-prudential policy. These topics are particularly important and

    relevant for China to better formulate a reform plan. This conference is

    also a good opportunity to share our own practices in conducting

    monetary policy as well as our thinking about reforms ahead with a very

    distinguished audience.

    Finally, I would like to thank IMF colleagues and our PBC staff for

    their efforts to organize the conference, and also everyone present today

    for their contributions to the conference. I hope this conference will

    contribute to reforms in China and a better understanding of Chinas

    circumstances globally.

  • iii

    New Issues in Monetary Policy: International Experience and Relevance for China

    INTRODUCTION2

    The Peoples Bank of China (PBC) and the International Monetary Fund

    (IMF) held a joint conference on March 27, 2014, in Beijing to discuss

    New Issues in Monetary Policy in the context of the international

    experience and its relevance for China. This was the second joint

    PBC/IMF conference; the first was held in 2013 and covered capital

    account liberalization.

    Against the backdrop of the global financial crisis and the use of

    unconventional monetary policy, conference participants looked at the

    implications for monetary policy frameworks, as well as the changing

    toolkit available to central banks. As China makes the transition toward

    an increasingly open and complex financial system, the conference

    reviewed the experience of other major economies as they moved

    toward interest-rate-based tools and how they addressed rapi