The Economist. (2023, April 20). Is China better at monetary policy than America? The Economist. https://www.economist.com/finance-and-economics/2023/04/20/is-china-better-at-monetary-policy-than-america

When China’s central bank governor Yi Gang spoke in English at the Peterson Institute for International Economics in Washington, D.C., he expressed respect for market forces and economic liberties, which reinforced the impression that he is a reform-minded technocrat. However, his theoretical precept is an unusual guide to monetary policymaking. Mr. Yi aims to give households and private firms “the maximum amount of freedom” to buy foreign exchange, without entirely abandoning capital controls. Mr. Yi aims to follow the golden rule when deciding policy by aiming a little below the glistering rate only because potential growth is difficult to calculate precisely. In addition, Mr. Yi cited the “attenuation” principle formalized by William Brainard of Yale University in 1967 to justify his cautious approach. However, cautious, inhibited policymaking may be counterproductive as traders in the financial markets and wage- and price-setters may come to expect this stodginess and adjust their actions accordingly. China’s attenuated monetary policy may have succeeded due to the country’s aggressive containment of the pandemic in 2020, rather than cautious monetary policy.