Many brothers ask, what is the purpose of monetary policy?
How does the national machinery regulate the economy?
What impact does this 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
Mainly focuses on inflation, but actually 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.
At this time, loosening monetary policy can actually help with deflation, boost employment, and stimulate economic growth. And during a crisis, the Federal Reserve will certainly respond.
In the end, the United States does not need to worry about the balance of international payments; they can just turn on the printing press to respond, and through financial markets, they can achieve the return of capital accounts in dollars. 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 of the Weimar Republic. However, the global financial crisis in 2008, along with the subsequent European debt crisis, has resulted in high unemployment rates, stagnant economic growth, and low inflation, all of which are interconnected.
03. As for China
First, it is about stabilizing growth, second is inflation, third is not employment, and it cannot be considered balance of international payments; it should be exchange rates. Regarding employment, it relies on stable growth and fiscal policy.
04. Under the gold standard
The balance of international payments may be more important, but now it may be less important than exchange rates, and the purpose of exchange rates may not only be for the balance of international payments, but also very importantly to maintain trade competitiveness.
05. In addition, inflation is only concerned with prices. Under the current macro-prudential monetary policy framework (MPA), asset prices are also very important.
BIS and central banks in various countries, including the People's Bank of China, have all focused on the influence of financial cycles and asset prices on macro indicators. However, different economies need to focus on different asset prices. $BTC
