Mr. Tobias Adrian, Mr. Douglas Laxton, and Mr. Maurice Obstfeld
Contributors working at the International Monetary Fund present 14 chapters on the development of monetary policy over the past quarter century through the lens of the evolution of inflation-forecast targeting. They describe the principles and practices of inflation-forecast targeting, including managing expectations, the implementation of a forecasting and policy analysis system, monetary operations, monetary policy and financial stability, financial conditions, and transparency and communications; aspects of inflation-forecast targeting in Canada, the Czech Republic, India, and the US; and monetary policy challenges faced by low-income countries and how inflation-forecast targeting can provide an anchor in countries with different economic structures and circumstances.
In 2018, China marked the fortieth anniversary of “reform and opening up,” which launched a growth miracle that has put the country on a path—absent major shocks—to becoming the world’s largest economy by 2030. This rapid economic development has been mirrored in the growing size of the financial system, which is now home to the world’s largest banks and the second-largest equity market. The prospects for China’s bond market, already the third largest in the world, are the focus of this book.
Foreign appetite for renminbi (RMB) assets, including bonds, has regained momentum since the second half of 2017, encouraged by solid economic growth, a better outlook for foreign exchange, and broader access to onshore markets. And the room for further upside is significant. In terms of market development and theoretical accessibility for foreign investors, China’s onshore bond and derivatives markets are at least on par with—or have exceeded—many Asian local currency bond markets that are already included in global bond indices. However, the obstacles are likewise impressive. Accessibility remains weaker than in many peer markets, hindered by technical issues including tax uncertainty, documentation hurdles, the complexity and lack of fungibility across various access pro-grams, and operational issues in onshore foreign exchange transactions.
The authors thank participants at the 2018 joint People’s Bank of China–IMF conference on China’s Growing Bond Market in a Global Context for helpful comments and feedback. The authors also thank Anil Ari, Tomas Harjes, Ma Jun, Nan Li, Stephen Mulema, Rafael Portillo, Filiz Unsal, Ping Wang, Ting Yan, and People’s Bank of China staff for very helpful comments and suggestions.
The market for dim sum bonds (bonds issued outside of China and denominated in Chinese renminbi) in Hong Kong SAR has expanded since 2011, underpinned by policies promoting external use of the renminbi and liberalization of two-way renminbi fund flows between onshore and offshore markets, before peaking in 2015.