Bai Shizhen: The Federal Reserves unlimited quantitative and loose effect

From February 19th to March 20th, due to the spread of crown disease, US stocks fell more than 30%, a historical record.Since March, the Federal Reserve has two emergency interest rate cuts to zero and restarted quantitative easing policies, but the market panic has continued.

On March 23, the Fed announced that the unlimited and loose QE policy was unlimited. It purchased U.S. Treasury bonds and mortgage loans to support securities, injecting a lot of funds into the market. Investors' panic was relieved, and the stock market rebounded.The Federal Reserve should prevent the stock market from collapse and maintain a short -term goal of maintaining the stability of the financial market.

Dispute to the central bank's functions

It is worth noting that the Federal Reserve has once again bypassed the banking system, launched the business bill financing mechanism created in 2008, and directly issued short -term loans to qualified companies to maintain the vitality of the credit market of the company.At the beginning of June this year, the Fed also began to buy a wide and diversified corporate bond portfolio directly under the credit measures of the secondary market corporate corporate corporate credit measures to support market liquidity and provide credit to large employers to help restart the corporate bond market.These are more controversial practices.

Because, in the end, the central bank's traditional monetary policy is to regulate market liquidity through the banking system. For example, through open market operations, the central bank generally uses risk -free national debt as a trading tool to regulate the liquidity of the banking system.Publishing loans and purchasing corporate bonds directly to non -financial enterprises will mean that the central bank will bear more credit risks, deviates from the traditional functions of the central bank, and also causes the monetary policy to bring a significant distribution effect.Differential.

Then, buying corporate bonds directly also marked the function of the central bank from traditional as the last lender, that is, to conduct short -term loans with high -quality mortgagers such as short -term loans without risk government bonds to the bank, and to the final marketor.This has increased the credit and market risks undertaken by the central bank, nor does it meet the fact that the central bank has always never been profitable for profit; because the purpose of profitability has a conflict with the central bank's functions as financial market managers.

Although based on the current emergency situation, US President Trump obviously welcomes the non -traditional practices of the Federal Reserve to save the economy, but in the long run, if monetary policy becomes a quasi -fiscal policy, it may affect the principles of the Fed's future independent operation.For example, under the democratic system in the future, based on the consideration of the short -term political achievements to please voters, the government may encourage or affect the central bank to adopt a strong or excessive expansion monetary policy in the short term, which has affected the central and long -term goals of the central bank to maintain stability.

Therefore, the two former chairman of the Federal Reserve Bernanke and Yellen recently said that this type of non -traditional approach must be carefully calibrated in order to provide the Federal Reserve to the required liquidity to the important markets.Credit and market risks are minimum.

Unlimited bottom line

The Fed's banner under the unlimited quantitative easing policy this time is mainly in order to play a publicity role. It is to prevent the stock market from collapse in the emergency. The short -term direct purpose is to prevent the financial crisis and maintain the stability of the financial market.

After the financial market is stable, the Federal Reserve is more likely to take zero or low interest rates next, and try to avoid excessive printing under quantitative easing to maintain the international community's confidence in the US dollar and maintain the hegemony of the US dollar international currency.

In fact, the Fed Chairman Powell provided the market with FORWARD Guidance on June 10, saying that the Fed maintains the policy interest rate close to zero level. Until the end of 2022Essence

First of all, quantitative looseness is impossible to have no limit and no conservation.The previous global financial crisis, the Federal Reserve's large number of new banknotes has expanded its balance sheet, from $ 700 billion in 2009 to $ 4.4 trillion in 2014.This epidemic increased the balance sheet to $ 6.72 trillion on May 6 this year.

The Federal Reserve is not a universal superman. Its financial strength is not a bottomless hole and can be printed in unlimitedly.Just like the government's fiscal taxes are the money and wealth of the people. The central bank printing banknotes under quantitative easing is the consumption of the country's credit wealth; too much credit consumption will affect the international community's confidence in the US dollar.

Secondly, quantitative looseness is impossible to endlessly.First of all, quantitative looseness is not a conventional monetary policy. It has certain side effects and sequelae.For example, due to loose liquidity and ultra -low interest rates, the government is difficult to resist the temptation of debt in order to save the economy to save the economy, and to survive or high -risk investment, resulting in a debt crisis in some countries.Then, the quantitative and loose monetary policy will cause financial depression, because the low interest rate reduces the government's loan costs, but the ultra -low yield of government bonds has damaged issues such as civilian investors, such as pensions and insurance benefits.

Therefore, the general quantitative looseness is a very important means in the very period. It can also be said that there is no way. For example, due to the sense of crisis, banks are particularly sensitive to credit risk and their willingness to lend is particularly weak.Although the bank has very sufficient funds, it has hoarded funds and has not leaned to enterprises or families, causing the so -called liquidity trap.At this time, the banking system could not issue loans to stimulate economic activities and increase the total demand, which caused the economy to face serious depression. The central bank had to adopt this quantitative and loose ultimate means.

Former Federal Reserve Chairman Bernanke said that Bernanke's banknote helicopter (Helicopter Ben) was only sprinkled with money to save the economy when facing severe economic austerity.

Currency War

The epidemic broke out in March this year.Meng Wenneng, director of the Singapore Financial Administration, revealed that the tightness of the US dollar funds is more serious than the 2008 global financial crisis.Senior Singapore Financial Administration traders even said that: in my 30 years of experience in US dollar Treasury trading, I have never experienced the market liquidity so tense.After that, the Federal Reserve urgently launched the arrangement with the currency exchange with many central banks, injecting a large number of dollars into the market, which relieved the US dollar shortage.

The US dollar reflects the excessive dependence of the global financial system to the US dollar.In order to avoid excessive relying on the US dollar, and facing the needs of the risk of US dollar again, many countries will actively explore the use of alternative sovereign currencies other than the US dollar, and even cryptocurrencies as international payment and liquidation tools.

But in the short term, the status of the US dollar is still relatively stable. The main reason is that it is not that the US economy is getting stronger, but the performance of other major economies is not relatively good.During the post -global financial crisis of the European Union and Japan, the overall economy was still weak; Britain was dragged down by Brexit.

Due to China's strong economic scale and strength, there is also a wide range of international economic and trade connections, the most economic conditions for RMB, becoming another international currency.However, under the control of capital projects, the current international liquidity of the renminbi is not strong; coupled with the impact of exchange reform on August 11, 2015, the authorities have strengthened the control of domestic capital outflow and slowing the pace of RMB internationalization.The construction and stress of the breadth and depth of China's financial market are also necessary financial conditions.

In addition, other necessary conditions, such as the international community's laws and mechanisms such as law and justice, economic and social governance and mechanism of China, must also have a certain understanding and recognition.However, it is certain that American astronomical debt, coupled with recent economic policies in the United States, and lack of leadership in many important international occasions, providing a great opportunity for international currency to develop international currencies outside the US dollar.

(The author is a guest professor at the National University of Singapore, Dean of Li Bai Financial College, and former dean of the Singapore Financial Administration College)