On May 10th, the inaugural session of the "Global Economic Governance Forum Cutting-edge Lectures" was successfully held. The lecture featured Professor Huang Haizhou, a distinguished professor at Tsinghua University's PBC School of Finance and a member of the Monetary Policy Committee of the People's Bank of China, who spoke on the topic "National Capital Structure: New Theories on Money." The session was chaired by Zhang Xiaoyan, Associate Dean of Tsinghua University PBC School of Finance and Deputy Director of the Academic Committee of the Global Economic Governance Forum of 50. Experts from the forum, faculty members from Tsinghua PBCSF, and over a hundred guests from academia and industry attended.
Huang Haizhou delivering his lecture
Huang Haizhou first introduced an innovative monetary theory framework based on his and Professor Patrick Bolton’s new book "Money Capital: New Monetary Principles for a More Prosperous Society." They apply corporate finance theory to analyze the capital structure of nations, suggesting that a country's sovereign currency and sovereign debts issued in its currency are effectively shares in its national capital structure, whereas sovereign debts issued in foreign currencies are debts, such as dollar-denominated debts issued by countries outside the United States.
Huang Haizhou argued that when a country faces development opportunities with many promising investment projects requiring financing, it should issue sufficient currency (equity in its national capital structure) to support economic growth. This can achieve rapid economic expansion and effectively manage inflation risks. Over more than 40 years of Reform and Opening-up, China has developed without taking on significant foreign debt, instead financing rapid economic and social development through the issuance of its currency, using high economic growth to counter inflation. Rapid industrialization and urbanization in China would not have been possible without a sufficient increase in money supply (measured, for example, by M2). Similarly, other major economies, like the United States, have experienced rapid increases in money supply during their periods of rapid development.
Huang Haizhou noted that currency is a sovereign right, and when a country opts to use another nation's currency or joins a monetary union, it relinquishes some of its sovereignty. In 2012, the Eurozone experienced a severe debt crisis. Countries like Italy and Spain had problems with currency depreciation before joining the Eurozone in 1999 but did not face massive foreign debt crises. After joining, they converted their domestically issued sovereign bonds into Euro-denominated bonds, effectively conducting a debt-for-equity swap, which reduced their ability to hedge against foreign debt risks.
Huang Haizhou mentioned that traditional monetarism, which focuses on macro-level concerns, believes that money can be directly injected into the real economy through "helicopter money," paying insufficient attention to the micro-foundations of money. He emphasized the importance of how money enters the real economy, a question often inadequately addressed by current macroeconomic models. Only through systematic study of banks, financial markets, and financial systems can the nature of monetary issues be understood.
Regarding the role of central banks as "lenders of last resort" during financial crises, Huang Haizhou believes that, compared to the traditional Bagehot Rule, central banks can exchange capital for equity in distressed institutions during crises, providing unsecured capital support on a micro-level and increasing equity financing on a national capital structure level. This approach was adopted by the Federal Reserve during the 2008 financial crisis, using equity instruments to assist institutions rather than loans conditional on high interest rates and quality collateral. This not only avoids the moral hazard of the rescued institutions but also effectively controls the financial risks faced by the central bank during the rescue process.
Huang Haizhou also discussed the coordination between monetary and fiscal policies, especially during crises, emphasizing the importance of leveraging the information advantages of different sectors to collaborate and respond most effectively.
Subsequently, Zhang Xiaoyan and Huang Haizhou started a dialogue and had a heated discussion with the guests on topics such as the current development status and research frontiers of monetary theory, how to boost the domestic economy, and corporate development in the context of U.S. interest rate hikes.
This conference is hosted by the Forum of 50 on Global Economic Governance and hosted by Tsinghua University PBC School of Finance.
The "Global Economic Governance Forum Cutting-edge Lectures" is based on relevant experts and scholars of the 50-person Forum on Global Economic Governance and takes global economic and financial governance as the core perspective to conduct in-depth discussions on world economy, international finance, international trade, international relations, and digital technology. Cutting-edge issues in many fields such as economy, energy and climate change, and public health, share the latest academic research results, discuss future policy trends, and contribute wisdom and strength to global economic and financial governance.
