62 Finance & economics The EconomistAugust 22nd 2020
1Y
i gang, thehead of China’s central
bank, is fond of saying that he wants to
run “normal” monetary policy. By that he
means keeping interest rates well above
zero, ensuring that the yield curve slopes
upwards and avoiding direct purchases of
the government’s bonds—much of which,
in fact, make the People’s Bank of China
(pboc) a highly abnormal central bank
these days. The clearest sign of this is its
balance-sheet. In terms of its assets, the
pbochas gone from the undisputed heavy-
weight to a middleweight. Its restraint is a
combination of two different strands in its
pursuit of policy normality: an avoidance
of the unusual manoeuvres that have be-
come common elsewhere and a reversal of
some of the unusual manoeuvres that used
to be common in China.
Starting in the early 2000s, the pbocac-
cumulated assets at a prodigious rate, al-
most entirely in the form of foreign-ex-
change reserves. The build-up was a result
of its policy of limiting the yuan’s apprecia-
tion at a time when China was running a
giant trade surplus. The pboc’s assets
peaked at 70% of gdpin 2008, more than
twice the level of its peers in America, Eu-
rope and Japan at the time. But as China’s
foreign-exchange reserves have shrunk
and then stabilised over the past five years,
so has the central bank’s balance-sheet.
By contrast, the assets of the Federal Re-
serve, the European Central Bank and the
Bank of Japan have mostly risen over the
past decade or so, as they undertook quan-
titative easing, buying up governmentbonds and, in some cases, corporate paper
and equities. In order to minimise the eco-
nomic damage from the coronavirus pan-
demic, they are buying yet more bonds.
The pboc, though, has barely added to its
assets (see chart). As a share of gdp, the size
of its balance-sheet is now roughly the
same as the Fed’s—around 35%.
In part China’s restraint is because the
economy is in relatively better shape, with
the virus all but stopped and a growth re-
bound well under way. Partly it also reflects
what might be called the Kipling doctrine
in China’s bid to promote the yuan’s inter-
national role: if you can keep your money
supply in check when all about you are ex-
panding theirs like mad, then reserve-cur-
rency status may some day be yours.
There is also a deeper reason for China’sSHANGHAI
As central banks ramp up their money-printing, China is the odd one outPeople’s Bank of ChinaConforming to norms
When they go high, Yi goes low
Central banks’ balance-sheets, $trnSources:Wind;IMF86420
20171513110907052003BankofJapanEuropean
Central Bank
Federal
Reserve
(US)People’s Bank of ChinaA bastion of monetary normalityA
fter a brutalfirst six months of
the year, governments across the
world are hoping for an economic
bounce-back. Rich-world gdp fell by
about 10% in the first half of 2020. Yet
much has changed since—including
that more people are now wearing
masks. Economists, obsessed with
translating everything into gdp, won-
der if more widespread face-covering
could help the recovery.
The thinking goes that masks can,
in part, substitute for lockdowns.
People wearing them need not be dis-
couraged as much from using public
transport. More shops and offices
might be able to reopen, albeit while
practising social distancing.
Calculations from Goldman Sachs, a
bank, suggest that a 15 percentage-point
rise in the share of the population that
wears masks would reduce the daily
growth of cases by about one percent-
age point. That obviates the need for
lockdown measures that would oth-
erwise subtract nearly 5% from gdp.
The Economisttook those calculations a
step further. According to our reck-
oning, an American wearing a mask for
a day is helping prevent a fall in gdpof
$56.14. Not bad for something that you
can buy for about 50 cents apiece.
These economic benefits suggest
that governments should do even more
to nudge the minority of people who
still forgo masks. English shoppers
without a face-covering risk a fine of
£100-3,200 ($130-4,200). Authorities in
Turkey and Tuscany have handed out
free ones to citizens. Perhaps govern-
ments should do more—such as pay
people to wear them. After all, the large
economic benefits of doing so have
finally been unmasked.Cloth of gold
Mask economicsA new frontier in facial finance