more Chinese tourism means more capital flight
Why more Chinese tourism means more capital flight
Many billions of dollars escape under the cover of holidays
Arailway tour of Laos, a trip to the far corner of Russia to see the Northern Lights, or a polar cruise in the Arctic. These are some of the adventurous options being marketed in China as the country reopens. The urge to travel seems strong: Ctrip, a travel agent, has reported a quadrupling of inquiries in the space of a month; students are searching more for study-abroad opportunities, too. In Macau, a gambling centre, two of the fanciest hotels are fully booked this month. If pre-pandemic patterns reassert themselves, China’s travel spending could increase by $160bn this year, according to Natixis, a bank.
After three years of covid-19 restrictions, this wanderlust is understandable. But alongside the obvious motives—sun, sea, sand and study—is another unstated one: spiriting money out of the country. Capital controls limit the foreign currency Chinese citizens can buy. The movement of people across borders creates cover for the movement of money. In 2017, for example, China’s authorities reported how an individual from Tianjin got hold of 39 bank cards and withdrew more than C$2.4m ($1.8m) “in the name of studying abroad”
Does money growth help explain the recent inflation surge? Key takeaways • The strength of the link between money growth and inflation depends on the inflation regime: it is one-to-one when inflation is high and virtually non-existent when it is low. • A link can also be seen in the recent possible transition from a low- to a high-inflation regime. An upsurge in money growth preceded the inflation flare-up, and countries with stronger money growth saw markedly higher inflation. • Looking at money growth would have helped to improve post-pandemic inflation forecasts, suggesting that its information value may have been neglected. Does money growth help to explain the post-pandemic surge in inflation? Monetary aggregates have gradually lost relevance since the heyday of monetary targeting in the 1970s and 1980s as their link with inflation has weakened considerably. Consequently, they have largely disappeared from academic analysis (Laidler (2002)), as well as from monetary policy design and implementation. More recently, however, they have enjoyed a certain revival, as the surprising resurgence of inflation has gone hand in hand with increases in the money stock in a number of jurisdictions prominent in economic debates (Congdon (2022), Issing (2021a), Laidler (2021), Goodhart (2021), King (2021))1 as well as more generally (Graph 1). In this Bulletin, we provide some systematic cross-country evidence on the link between monetary
Concluding considerations The findings above should be interpreted with great care and caution. First, they say little about causality. The debate about the direction of causality in the link between money and inflation has not been fully settled. The observation that money growth today helps to predict inflation tomorrow does not, in and of itself, imply causality (eg Tobin (1970)). Causality is neither necessary nor sufficient for money to have useful information content for inflation – which is our focus here. A few examples may help to fix ideas. In a monetarist narrative, an exogenous increase in money would generate excess balances, which in turn would have a broad influence on rates of return, expenditures and ultimately inflation (eg Friedman (1956)). An example of an exogenous increase would be the central bank making unsterilised large-scale asset purchases from non-banks. Or perhaps (unsterilised) government transfers to households and firms – although in this case, the impact of the increase in the money stock may in fact capture the income effect of the fiscal transfer.8 But in other cases, the increase is largely endogenous, ie demand-driven, as in 2020, when companies drew heavily on their credit lines. And, more generally, agents may adjust their portfolios in advance of their spending based on changes in their income: in this case, it is income, not money, that causes spending to increase, with the evolution of money balances acting as a signal. In the current episode, the source of the increase in money stock has varied a lot across countries, as suggested by the relative importance of the increase in the counterparts on the asset side of banks’ balance sheets – bank reserves, credit to the government or to the private sector (Annex Graph A1). Second, the findings are based on just one episode, albeit one that is broadly shared across countries. The acid test will come in the years ahead. Having said all this, the findings give pause for
Monetary Policy without Money: Hamlet without the Ghost* by David Laidler *The author is Bank of Montreal Professor in the Department of Economics and the University of Western Ontario, and Canadian Bankers Association Scholar and Fellow in Residence at the C.D.Howe Institute. This paper was presented at a conference in honour of Charles Freedman, held at the Bank of Canada on June 19-20th 2003. The author is grateful to the official discussant, Jack Selody, to Chris Ragan and Nick Rowe for comments on an earlier draft, and to to Manish Pandey for preparing the charts, and, more important, for helpful discussions too. Introduction AHamlet without the Prince@ is an overworked metaphor, not least by those who argue for the central importance of the quantity of money in the analysis and conduct of monetary policy at a time when that variable is often pushed into the background. Over the years, I have probably done my own very small bit to reduce it to a cliche, not least in the course of conversations with Chuck Freedman, that have now been going on for more than twenty years. As ought to happen in such discussions, each of us has scored points with the other, and we now agree about more than we did in the early 1980s, when the Bank of Canada and M1 parted company. At the time, it was not quite clear which of the two had been the more eager to dissolve the partnership, but the break-up nevertheless probably caused more dismay to me, who had been counting on the union=s permanence, than to a sceptic like Chuck. The title of my paper today is intended first of all to indicat
There is also the question of just what determines the price level at any moment in time in a policy regime that concentrates on manipulating interest rates to control its rate of change over time. Is its current value simply the outcome of history, and kept temporarily in place by unspecified frictions, or could it, after all, have something to do with the interactions of current levels of the supply of nominal money and the demand for real money? Nor should one overlook wider ranging questions about the institutional context in which monetary policy is conducted. The linkage between fiscal and monetary policy inherent in the 17Fukao (2003) provides a stimulating discussion the case for deploying such a tax, which 22 government=s budget constraint is a fundamental element in the case for granting central banks some independence from political processes, even if only in the deployment of their policy instruments. This relationship implies that where taxation and borrowing, both of which are politically unpopular, fail to provide the revenue needed to cover government expenditures, most of which are politically popular, money creation is the last resort available. Hence, it is an essential feature of an inflation-proof monetary regime that the central bank be relieved of any obligation to purchase government debt. It is hard to make sense of this c
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