Opinion | OP-ED CONTRIBUTOR
China’s New Central Banker Is Just as Important as the Fed’s
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| Yi Gang, who has just been named the new head of the People’s Bank of China. |
The recent appointment of Jerome Powell as chairman of the Federal Reserve was the subject of intense scrutiny. After all, the Fed’s every action reverberates in international financial markets. The announcement on Monday of Yi Gang as the new governor of the People’s Bank of China, China’s central bank, received somewhat less notice.
The world should pay more attention. This choice is as important as any Fed nomination. It isn’t simply that China is the world’s second-largest economy, a crucial market for everything from American aircraft and soybeans to German cars. Its monetary and financial policies affect the whole world.
The central bank’s previous governor, Zhou Xiaochuan, engineered significant reforms. He freed up banks to set deposit and loan rates based on market conditions rather than by decree and also allowed capital to start moving more freely into and out of China. After a 15-year tenure, Mr. Zhou is turning over the keys to China’s economy to Mr. Yi, his trusted deputy, and leaving him with a great deal of unfinished business.
Unlike the Fed, China’s central bank is not independent. Major policy decisions are made by an elite government committee, and China’s president has to sign off on them. But President Xi Jinping came to trust the central bank under Mr. Zhou’s leadership and has given it a lot of leeway in setting and carrying out policies in key areas of the economy.
The People’s Bank of China sets short-term interest rates (like the Fed) and tries to control bank lending to support growth while keeping inflation low. It also determines how freely the Chinese currency’s exchange rate can move and manages restrictions on the flow of money in and out of China. Last week, the government increased the central bank’s oversight responsibilities, putting it in charge of drafting key banking regulations.
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