Many brothers have asked, what is the purpose of monetary policy? How does the state machine regulate the economy? What impact does this regulation have on our investments? In fact, the main purposes of monetary policy are: economic growth, inflation, employment, and balance of international payments.

01. For example, the Federal Reserve.

It mainly focuses on inflation, but it also monitors employment. On one hand, the natural unemployment rate affects the potential natural inflation rate; on the other hand, if the unemployment rate is too high, there will be deflationary pressure. In this case, loosening monetary policy can help combat deflation, boost employment, and stimulate economic growth. During a crisis, the Federal Reserve must respond accordingly. Finally, the U.S. does not need to worry about balance of international payments; they can simply turn on the money printing machine, and through financial markets, they can achieve capital account dollar inflow. Instead, the Triffin dilemma has always been a sword of Damocles.

02. Eurozone

Establishing the Eurozone means that countries have given up on balance of international payments. The European Central Bank initially focused on inflation, inheriting the tradition of the German central bank, which was influenced by the hyperinflation experienced during the Weimar Republic. However, the global financial crisis in 2008, coupled with the subsequent European debt crisis, led to high unemployment rates, stagnant economies, and stagnant inflation—all interconnected.

03. As for China

First is stabilizing growth, second is inflation, third is not employment, and it cannot be considered balance of international payments; it should be the exchange rate. Regarding employment, one relies on stable growth, and the other relies on fiscal policy.

04. Under the gold standard

Balance of international payments may have been more important, but now it might be less important than the exchange rate. Moreover, the purpose of the exchange rate may not only be to maintain balance of international payments; it is also significantly to maintain trade competitiveness.

05. Additionally, inflation only concerns prices. Under the current macro-prudential monetary policy framework (MPA), asset prices are also very important.

The BIS and central banks around the world, including the People's Bank of China, have recognized the impact of financial cycles and asset prices on macroeconomic indicators. However, different economies focus on different asset prices.

For example, China tends to guard against bubbles, especially in real estate, while the Federal Reserve focuses more on maintaining stock market stability and avoiding sharp declines; their goals and tasks differ.