What Does a Credit Controller Do?

Credit control refers to a kind of macro management measures that the central bank implements target management on the total amount of social currency credit by adjusting the total credit scale or the base currency total. Its fundamental purpose is to achieve and maintain the basic balance of aggregate social demand and aggregate supply, and to promote the sustainable, rapid, and healthy development of the national economy on the basis of maintaining a stable currency. Under the planned economy system, the central bank's total credit management is mainly the control and management of the total scale of national bank loans, and its monetary policy means are mainly the national bank's currency credit plan and cash issuance plan. With the changes in the economic and financial system, the People's Bank of China has implemented a credit management system such as unified deposit and unified loans, balance of contract, real loans, and asset-liability ratio management. In 1998, control over the size of loans to state-owned banks was abolished. Under the market economy system, the central bank's total credit management is mainly the regulation and management of the money supply. Its monetary policy means mainly adjust the central bank's reserve currency planning, deposit reserve ratio, rediscount rate and open market operations .

Credit control

Right!

Credit control means

The contents of credit control mainly include the establishment of credit management organizations, credit policies, credit risk monitoring and management, credit supervision and inspection, etc. ^[1]

In the 2008 monetary policy, the most criticized was the credit limit management actually introduced by the central bank in the "window guidance" at the end of last year. However, from the perspective of examining whether the regulatory objectives and policy measures match, the current policy orientation of "double stability of currency and credit" adopted by the central bank is very targeted. Of course, we should also consider how to effectively allocate the given quota to achieve the effect of optimal resource allocation. ^[2]

The impact of money demand and supply

The central bank introduced credit limit control in its window guidance at the end of 2007. As a result, some public opinion has been criticized, and even some authoritative academics have called it "the resurgence of the planning system" and "the retrogression of market-oriented reforms."

In a classic document jointly completed by the current Fed Chairman and former Fed Vice Chairman, they discussed the choice of the optimal monetary policy instrument under different shocks. Applying this theory to our country, we can draw the following conclusions:

If the central bank believes that it is currently facing the impact of excess reserves or increased credit supply, then the policy orientation of both stable currencies and stable credit is correct; if the central bank believes that it is currently facing the impact of falling demand for money, then, Only the policy orientation of stable credit is targeted; if the central bank believes that it is currently facing the shock of increasing money supply or credit demand, then only the policy of stable money is effective.

Prior to 2007, the central bank always believed that the main reason for the expansion of investment and the excessive growth of money and credit was the excess liquidity caused by the import of foreign trade surplus, and the change in the bank's excess reserve level was just a sign of this shock. This means that the money supply shock was considered to be the only important shock facing China's macro economy at the time.

Under this judgment, the stable currency naturally became the only targeted policy orientation of the monetary authorities. At this point, it is not difficult to understand why in the short period of two years from 2006 to 2007, the central bank has raised the statutory deposit reserve ratio up to 14 times and issued 11 targeted central bank bills.

However, the end result of the spared effort is still not entirely satisfactory. This implies that policy prescriptions may not be completely symptomatic. In addition to the money supply shock, our economy may also face other types of shocks. Last year, Yu Yongding first proposed that, in addition to the shock of money supply caused by the imbalance of international payments, there is also a shock to the demand for money caused by the decline in the willingness of residents to hold money.

At the same time facing the policy choices under the dual impact of money demand and money supply, the central bank should take measures to stabilize the currency and credit at the same time. Compared with interest rate hikes and punitive targeted central bills, credit limit management is obviously faster and more effective in stabilizing credit, and the effect is more predictable. This is actually the most fundamental reason why the central bank has adopted credit limit management.

China's current judgment that both the currency supply and demand shocks mean that even with the introduction of credit limit management measures, the central bank will continue to adopt market-based open market operations, targeted central bills, reserve ratios and other quantitative tools to collect liquidity in order to simultaneously To achieve the purpose of stabilizing the currency.

Significant decline in money demand

First, consider the empirical evidence of the impact of money supply shocks. The foreign exchange brought in by the foreign trade surplus was directly acquired by the monetary authorities when they issued RMB, and the result was a passive currency issuance, which was manifested as a shock to the money supply. The magnitude of this shock can be measured by measuring the effect coefficient of foreign exchange contributions on the base currency.

At the beginning of 2002, the People s Bank of China s foreign exchange accounted for only 173.9 billion yuan, and the coefficient of influence (a) of the foreign currency account on the base currency was 43%. Since then, the foreign trade surplus has promoted the overall rise of the foreign trade surplus, and the role coefficient has also increased rapidly . In December 2007, the balance of foreign exchange accounts was 115169 billion yuan, with a coefficient of effect of 113%. The inflow of foreign exchange brought tremendous pressure on the passive increase of the money supply.

Second, consider the empirical evidence of the shock of money demand. According to Yu Yongding's analysis, the impact of currency demand is mainly reflected in a decline in the willingness of residents to hold money and an increase in the willingness to hold other financial assets.

In the "Quarterly Survey of Urban Depositors" published by the central bank every quarter, residents' currency holding willingness was relatively stable throughout 2005. The proportion of urban residents who believe that "purchasing stocks or funds" is basically the same every quarter of the year Hovering between 5.1% -6.5%. However, after entering 2006, residents' willingness to hold money has declined rapidly and significantly. The proportion of urban residents who believe that purchasing stocks or funds is the most cost-effective reached 18.5% in the fourth quarter, a significant increase of 12 percentage points from the 2005 peak. In 2007, the proportion of urban residents who believed that "purchasing stocks or funds was the most cost-effective" ranged from 30.0% to 40.2%, and continued to rise sharply.

Assume that the sum of M0 and household savings is used as an approximate indicator of household holding currency. From January 2003 to January 2006, the general trend of residents' demand for money was stable, and the average growth rate in the interval was maintained at about 18%. However, after entering 2006, the money demand of Chinese residents began a rapid decline. From a growth rate of more than 15% to the lowest level of about 6% in November 2007, it has dropped by 9 percentage points in a year.

This shows that, at least in the period since 2003, in addition to the impact of increasing money supply, China has indeed been facing the impact of falling demand for money. The gradual deepening of the understanding of the root causes of shocks will inevitably affect the central bank's choice of monetary policy. Therefore, the actual transition from the main stable currency to the policy of simultaneously pursuing monetary and credit dual stability is completely logical and targeted.

The growth rate of the base currency has dropped significantly

Let's examine the empirical evidence of the central bank's efforts to stabilize the currency. In actual policy operations, the first choice to stabilize the target currency amount (M2) is to first stabilize the base currency on the assumption that the currency multiplier is relatively stable.

After 2006, the base currency after deducting the statutory reserve is not stable, but the growth rate has decreased significantly compared with the previous one. This shows that the central bank believes that the strong growth of loans has significantly enlarged the currency multiplier, so it is necessary to promote the decline of the base currency (excluding the statutory reserve) in order to finally achieve the goal of currency stability, and ultimately guarantee the achievement of the expected effect of the policy. The growth rate of M2 at the end of last year was 16.7%, which was generally close to the level of 16.0% scheduled at the beginning of the year, which can be said to have basically achieved currency stability.

The crux of the problem is that in the face of a "dual currency shock" at the same time, it is obviously not enough to simply stabilize the currency, and the central bank must take measures to stabilize the currency and credit at the same time.

It must be pointed out that although the "double stability" idea of the central bank stabilizing currency and credit at the same time is generally symptomatic, how to effectively allocate the established quota within a given credit limit in order to achieve advanced incentives and incentives The effect of lagging and ultimately optimizing resource allocation is an important issue that macro authorities should not avoid. Failure to address this will inevitably affect the sustainability of this regulatory policy.

Since 2003, in addition to the impact of an increase in the money supply, China has also faced the impact of a decline in the growth rate of money demand, which is mainly reflected in a decline in the willingness of residents to hold money and an increase in willingness to hold other financial assets. The central bank's choice of monetary policy has also achieved a targeted change from the main stable currency to the pursuit of "double stability of currency and credit".

Judging from the current situation, the central bank's "double stability" idea of stabilizing currency and credit at the same time is generally symptomatic and has begun to show results, but within a given credit limit, how to effectively allocate a given quota to achieve advanced incentives The effect of lagging behind and ultimately optimizing resource allocation is an important issue that should not be avoided.