It’s true that the People’s Bank of China (PBOC) is not independent, but the central bank of the world’s second-largest economy is outgrowing that excuse. There’s plenty it can and should do without explicit sign-off from above.
Start by tackling what a recent International Monetary Fund (IMF) paper calls low-hanging fruits. This is basic and important stuff like beefed-up forecasts, regular press conferences and timely information in one place. Put another way, PBOC officials can be more candid about their assumptions and projections of what the world will look like. Central bank watchers know that the PBOC doesn’t have the final say on policy, or sometimes any say at all. The caveat is implicit, which if anything should liberate officials to speak more freely.
It would be unfair to characterize PBOC officials as lackeys or in any way inferior to their counterparts at other central banks. In my experience, they are serious, careful and articulate public servants. Many educated in the West, they are often technocrats and reformers, quietly nudging Beijing toward greater transparency and gradual capital-market liberalization.
Acknowledging their strengths also means conceding that the organisation’s institutional role is subordinate to the State Council, Beijing’s equivalent of a cabinet. The State Council needs to sign off on important PBOC steps and, according to the IMF paper, approve wording of statements. An array of ministries and agencies can seek a change in monetary policy, and issues get hashed out behind closed doors.
This moment calls for a leap of faith. Or at least a willingness to experiment. Market watchers have to trust that if the PBOC does opt to be more candid with its forecasts, it also will mostly prevail behind the scenes on monetary questions.
It’s a leap worth taking. The Federal Reserve and the European Central Bank are far from flawless. They have missed red flags and made mistakes, often quite invisibly. The “dot plots” and economic forecasts were a fairly recent development. For a long time, the Fed was ridiculously opaque.
An economy the size of China’s warrants a central bank to match its stature. More communication, even in incremental steps, can matter a lot. The PBOC can and will become more like the Fed over time.