China’s Structural Monetary Policy Tools: Objectives, Limitations, Unintended Consequences


Central bank interventions have intended and unintended structural effects. A growing number of monetary authorities are acknowledging these structural implications of monetary policy and have started addressing them more actively. In line with this development, the People’s Bank of China (PBC) has introduced a range of structural monetary policy tools.

This policy brief presents a typology of PBC’s structural monetary policy instruments, including targeted reserve requirements, central bank lending, and central bank discounts. It examines the policy objectives these instruments are designed to pursue, ranging from addressing distortions in the monetary policy transmission to fine-tuning monetary policy in support of financial stability and societal transitions. It also scrutinizes potential limitations and unintended consequences, including misdiagnosis of liquidity shortage and fragmentation of the monetary policy transmission.

Understanding the structural implications of monetary policy and strengthening their alignment with broader policy objectives is critical. The exploration of the PBC’s structural monetary policy tools offers an important opportunity to contribute to this objective.