Open AccessChina’s Currency Sterilization and Fiscal Centralization
Author(s) -
Hailong Jin
Publication year - 2022
Publication title -
journal of economics and public finance
Language(s) - English
Resource type - Journals
eISSN - 2377-1046
pISSN - 2377-1038
DOI - 10.22158/jepf.v8n2p21
Subject(s) - economics , currency , sterilization (economics) , china , inflation (cosmology) , chinese economy , exchange rate , monetary economics , revenue , international economics , foreign exchange market , finance , political science , law , physics , theoretical physics
During the late 1980s and early 1990s, the Chinese economy experienced painful tradeoffs between high economic growth and low inflation: stimulating GDP growth would cause severe inflation spikes, while controlling inflation rates would seriously contract GDP growth. In 1994, the Chinese government initiated a series of macroeconomic reforms to revitalize the Chinese economy. After that, the inflation dropped steadily and eventually achieved the “soft landing” in 1996. The high GDP growth rate has also been stabilized. This research elucidates two core components embedded in China’s 1994 program: currency sterilization and fiscal (revenue) centralization. The results suggest that classic economic models with nominal rigidity postulation may not be compatible with the Chinese economy.