Question

In a paragraph explain " How is China's monetary policy different from the United States' monetary policy?"

article " China modernizes its monetary policy"

Answer 1

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Question:

Answer:

Monetary policy is a policy that is adopted by the central bank to change interest rate through money supply to control, stabilizing and minimizing of inflation and unemployment and boost the economic growth. There are many types of tools that are taken by the central bank to implementing its monetary policy globally like- discount rate. OMO, reserve ratio etc. If we talk about China and the USA then we found that the economy and political system in both the countries are different. The USA is democratic nation that is following pure capitalism and believe in neo-liberalism other side China follow socialism and its market is not open and free like the USA. The monetary policy of both the countries are little different.

The monetary policy of China is very dynamic in nature and use different tools as per the demand or situation of the economy. It has no specific permanent tools that are taken in use to implement the monetary policy. China removes some existing tools and use new tool as per the experience. Suppose there is a monetary tool that get unsuccess in the western world or not get success in China in the same economic situation previously then China removes it from his monetary tool. In China, such a signal is less clear because the country doesn’t have a single specified policy rate like the Federal Fund Rate. The most popular existing tools of PBOC are - OMO, RRR, benchmark interest rates, rediscounting, standing lending facility, medium-term lending facility, pledged supplementary lending, etc. So, China always experiments new tools as per the demand of the economy or the current situation of the economy. USA has a predefined monetary policy and specific monetary tools that the Fed uses to implements monetary policy in different economic situation. Federal Fund Rate play an important role and use as a benchmark that influences borrowing costs, asset prices and exchange rates in the American economy. The most popular tools of Fed's monetary policy are- discount rate, OMO/QE, reserve requirement.

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