China's Dangerous Turn: Central Bank Breaks Rules, Ignites Risky Money Printing
China's Dangerous Turn: Central Bank Breaks Rules, Ignites Risky Money Printing
On August 29, the People's Bank of China (PBOC) announced it bought 400 billion yuan in long-term government bonds to replace maturing bonds, marking a shift to unanchored money printing. This practice occurs when the government fails to repay its debt and the PBOC directly purchases government bonds. Historically, the central bank has avoided this to prevent inflation and maintain stability. However, faced with severe fiscal challenges, including a 5.3% drop in tax revenue and an unstable bond market, the PBOC has abandoned previous rules. This shift is compounded by worsening international relations and a net outflow of foreign direct investment. The yuan's future looks bleak due to these conditions, and despite hopes for recovery from U.S. rate cuts, the yuan's decline is expected to persist.
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