[Written in front] In recent weeks, “monetization of fiscal deficits” has become a hot topic in the domestic financial industry. The background of this hot discussion is under the new coronavirus epidemic, what policy combination should we use to deal with this “unprecedented challenge”? Is it “full firepower” like the major developed countries in Europe and America, or is it a calm response to continue the existing policy framework?

Surging News has conducted in-depth discussions with economists and market participants on this issue: What does “monetization of fiscal deficit” mean? What problems can be solved? What are the disadvantages? We aim to objectively present the trend of multi-party contention to help identify the value and cost of different policy choices. In this big discussion of “deficit monetization”, many people in the industry believe that its theoretical foundation is modern currency theory (MMT), and MMT is not a mature economic theory.

Chen Xian, a professor at Antai College of Economics and Management, Shanghai Jiaotong University, said in an interview with Peng Mei News on May 18 that “monetization of deficits” is a policy of the last resort The reserve is fully applicable to the “camera choice” in Keynesianism. According to Keynesianism, right and wrong policy choices are ultimately answered by time, not by any theory that can be answered in advance.

In Chen Xian ’s view, under the impact of the epidemic, many low-income people are already facing pressure on their lives. If they still apply any theory and experience at this time, instead of making choices, The problem cannot be solved practically.

Chen Xian pointed out that the most important of the six guarantees is to protect the basic livelihood of the people. The central government can directly issue cash to the groups in need through “monetization of deficits”.

Professor Chen Xian, Antai College of Economics and Management, Jiaotong University

Surging news: is “ quantity of money ” outdated?

Chen Xian: Basically outdated. Because according to the formula for the quantity of money (Fisher’s equation), MV = PQ (money supply volume × currency circulation speed = price level × commodity transaction volume). First of all, Q originally mainly refers to commodities. Xu Jiadong, former head of the financial department in Taiwan (Doctor of Economics at Stanford University, specializing in currency theory and policy, international trade, and monetary finance), once pointed out at the Shanghai Jiaotong University that the current Q should be divided into Q1 and Q2. Q1 is Commodities, Q2 is an asset, otherwise many things are already difficult to explain. It turns out that Q only refers to commodities in a broad sense, but does not include assets. So the formula for the amount of money may be outdated, because the amount of money deposited on assets is more than the amount of money deposited on commodity exchanges.

Second, we assume that the V / currency circulation rate is constant in the short term. This problem occurred after China’s reform and opening up. M2 grew rapidly, but no serious inflation occurred. Some people began to pay attention to the speed of currency circulation. If the rate of currency circulation increases, the amount of money needed should be reduced. It cannot be explained that after the amount of money has increased, inflation has not occurred. Perhaps China’s currency circulation has slowed down. At the beginning of reform and opening up, the amount of money increased and inflation did not change much, which can be explained by the degree of monetization of the economy. In the past, many elements of China were not expressed in currency. After reform and opening up, they were expressed in currency. But the economic monetization of that stage is over. Another explanation is that the speed of currency circulation has decreased. As for why it slows down, the industry has different explanations for this, and there is no conclusion yet. In short, the decrease in the rate of currency circulation can explain the reason for no inflation after the increase in the amount of money.

Third, the entire production pattern has changed a lot, and this is also the case in Western countries. There is a global situation from production shortage to overcapacity. In this situation It is very difficult to raise commodity prices next.

Another explanation is that technological progress drives labor productivity. The new economy of the United States in the 1990s saw sustained economic growth, but inflation did not occur. Among them, the increase in labor productivity is an important explanation.

Surging News: How to define currency deficit?

Chen Xian: Regardless of the relationship between finance and currency, we still discuss the circumstances under which deficits can be monetized (now called deficit monetization, originally called financialization of finance). The problem-the relationship between government and currency. There is a three-tier relationship between the government and currency. Some people have described the three-tier relationship as three red lines, and there are three methods corresponding to it. The first is taxation. Taxes cannot be collected indiscriminately.Otherwise, the economy will collapse, this is the first red line. Second, if taxes are insufficient, debt can be issued. Our original method of increasing fiscal revenue through taxation was called a single budget, but later it became a double budget, that is, in addition to tax revenue, there is also non-tax revenue, and there can be debt income. So now the government can have debt income through debt issuance. This is the second way to obtain income. How much debt is issued? This is the second red line. The third red line is that the government can print money and issue currency.

There are two types of currency issuance, one is called economic issuance, which means that the currency is issued to meet the needs of economic growth. That is, the formula for the quantity of money, M = GDP + CPI +/- V. Its economic meaning is that the growth rate of money is equal to the growth rate of GDP plus the inflation rate plus or minus the rate of change of the rate of currency circulation. Assuming that the currency circulation rate is constant in the short term, remove this factor, then the growth of M2 is equal to economic growth plus expected inflation. The growth of M2, in some countries, the growth of M1 is equal to economic growth plus inflation. The growth of M2 is always greater than economic growth plus inflation. This is brought about by economic growth. The faster the economic growth, the greater the scale of the currency.

According to Keynesian camera selection policy principles, when aggregate demand is below full employment output, an expansionary monetary policy is implemented to stimulate aggregate demand, especially investment demand, In order to eliminate unemployment; when total demand is higher than full employment output, tighten monetary policy to curb total demand and eliminate inflation.

To make a camera choice, it is to issue a financial issue as soon as possible, so that the government can issue bonds, and ordinary people and businesses can buy government bonds. It is equivalent to taking out the temporary reserve money of the people and enterprises for the government. But people in the United States have no savings and can only buy them through the Fed printing money.

Therefore, there is a connection between issuing bonds and issuing currency. It depends on whom this debt is sold to and how to buy it. This is similar to the introduction of quantitative easing in major developed economies, and this approach is well understood in developed countries.

Surging news: Does “camera choice” apply to China?

Chen Xian: This talks about China again. China is different from developed countries. People still like to buy national debts. It is very safe. It is nothing more than moving bank savings to a house. This is not the case in Western countries, and ordinary people have no deposits. To whom are your government’s debts sold? So they appeared quantitative easing, let the FedPrint money to buy it.

The three red lines just mentioned, bond issuance and currency is sometimes linked, the key is to see who sells this bond and who is buying it?

Due to the epidemic this year, it is difficult to predict how the situation will be. Therefore, I think Liu Shangxi’s proposal to monetize the deficit is a policy reserve for which he has no choice. It is more realistic to propose it at this time.

Surging news: Regarding Liu Shangxi ’s proposed monetization of the deficit this time, he explicitly suggested that the central bank purchase special national bonds directly in the primary market. Do you agree with this?

Chen Xian: Yes, they are the same thing at this time. Monetization of deficits is a policy reserve that needs to be used under a last resort, and is a very important method of choice. We originally talked about Keynes ’s camera choices in macroeconomics, and we thought it was a drink to quench thirst. Why is it not good, but it is actually realistic. Monetization of the deficit also raises this issue in a realistic manner, that is to say, the situation may be worsened to this extent, then we have to do so as a last resort. And if you follow the previous experience, this is not possible and that is not possible, maybe the previous experience is no longer valid. Because you don’t know how long the epidemic will continue and what kind of trend it will develop. Past predictions are based on past experience. However, due to the impact of the epidemic, economic activities have been suspended, which has affected demand and supply. It turned out that it was either impact on demand or impact on supply. For example, fluctuations in oil prices have impacted supply, and the financial crisis has impacted demand. But now the epidemic is impacted by a non-economic factor, which also impacts demand and supply. First of all, it does not know how long it lasts, and applying past experience will not work.

Some people who oppose the monetization of the deficit take the gold coupons of the Republic of China as examples. I think there is no comparison. Even if we put the monetization of the deficit into practice, it is still under constant monitoring, and we can always pay attention to the problems it may cause.

Surging News: Do n’t worry about inflation?

Chen Xian: Even if there is an inflation risk, the current problem is more serious than possible inflation. There is an urgent need to issue cash directly for people’s livelihood. The money after the monetization of the deficit should be used to help. And I think that if people really want to find gold in people’s livelihood, the scale should be very large. However, found that Jin YeNot everyone sends it. For all people with low incomes. Of course, because of this income and property system in the past, it is now difficult to grasp accurate information for determining the scope of payment.

If you really want to discover gold, the scale should be large. Of course, there are also shortcomings in the social security and unemployment insurance systems of Chinese farmers. China’s unemployment insurance is at the level of minimum guarantee, and the unemployment insurance at the minimum guarantee level. So how to use cash to help this group of people is a real question.

Surging News: How to define this range? How much does each person pay?

Chen Xian: I suggest that farmers, migrant workers, and low-income people in cities and towns pay 10,000 yuan each. Of course, there will definitely be objections, saying that some poor people get money and save it. How can I save money now? Of course you have to go to dinner first. Sending this money also has a certain effect on promoting consumption. Monetization of the deficit as a policy reserve can meet this demand. This is because protecting the basic livelihood of the “six guarantees” is probably the most important thing at present.

Surging News: Why must we choose to monetize the deficit when sending money?

Chen Xian: It is important to emphasize that if you want to discover gold, it must be issued by the central government, not by the local government. First, the local government has no money to pay, and second, the central government can guarantee fairness. Therefore, it is better to find gold in the central government. If the local government can afford to issue consumer vouchers, it is better to rescue small businesses. For local governments, consumer vouchers and small businesses should choose one. It should pay more attention to small businesses. However, we also need to see the unique resilience of China’s economy, which may be able to slow down after a while. So the Keynesian debate we usually say is actually answered by time in the end, not by which theory can answer this question.

Surging news: So you think even Keynes may support the current monetization of deficits.

Chen Xian : Yes. Keynes’s position is to talk about camera choices and come as needed. I’ll talk about it later. Because at this time, if you still do n’t make a choice, if you still apply some theory and experience bluntly, it will fail now.

(Intern Li Yanxuan also contributed to this article)