Monetary Policy

Abstract

Because political stability is what keeps the Communist Party of China (CPC) in power, and to keep political stability the government needs to keep currency stability, keeping inflation in check is a prime political objective. In democracies, governments get voted out if they lose control of inflation, but where voting isn’t an option, people take more direct action. If inflation gets out of control, then prices get out of reach and poor people get hungry, and there’s no more socially destabilizing a demographic group than hungry people. Indeed, the People’s Bank of China (PBoC) is tasked with keeping inflation in check as its primary objective, and it performs control over the flow of money through China’s economy through state-owned banks. The government can therefore turn on the cash taps to inject money into the economy, or close of those taps to cool things down, a direct means of control over the economy few other governments have.