Foreign Exchange Issuance, Facilitating Issuance and China’s Currency Issuance Mechanism

Currency issuance is the basic link for the central bank to manage currency circulation. We sort out the stylized facts of China’s currency issuance, compare the mechanism of foreign exchange issuance and facilitating issuance, and analyze the change of currency issuance mechanism by empirical method. The results show that after 2014, the central bank’s foreign exchange assets are declining, and the central bank effectively offset the influence of the funds outstanding for foreign exchange by various monetary policy instruments based on domestic assets. This means that China’s currency issuance mechanism is shifting from foreign exchange issuance to facilitating issuance. In order to ensure that the facilitating issuance mechanism runs safely and efficiently, it is necessary to establish a new scheme for hedgingthe funds outstanding for foreign exchange, carry out a strict credit rating on collateral, improve the framework for the management of the collateral, and develop the bond market.