(Original title: One trillion! The central bank makes a big move, and turns over the balance of profits to the central finance! It is mainly used in these places to stabilize the macroeconomic market)
The central bank handed over one trillion yuan of surplus profits to the central finance.
The People’s Bank of China stated on March 8 that in accordance with the spirit of the Central Economic Work Conference and the deployment of the government work report, in order to enhance the available financial resources, the People’s Bank of China will hand over the balance of profits to the central government according to law this year, with a total amount of more than 1 trillion yuan, mainly used for tax refunds. and increase transfer payments to local governments to support the relief of enterprises, stabilize employment and protect people’s livelihood.
The PBC’s balance profit is mainly derived from the operating income of foreign exchange reserves in the past few years, and it will not increase the burden of taxation or economic entities, nor is it a fiscal deficit. The People’s Bank of China shall turn over the balance of profits to the central finance in accordance with the law, which will not cause the finance to overdraft to the central bank. Balanced profits are turned over on a monthly basis, and the balance sheet size of the People’s Bank of China remains stable, reflecting the coordination and linkage of monetary policy and fiscal policy, and jointly exerting efforts to stabilize the macroeconomic market.
The balance of profit mainly comes from the operating income of foreign reserves
The People’s Bank of China stated on March 8 that in accordance with the spirit of the Central Economic Work Conference and the deployment of the government work report, in order to enhance the available financial resources, the People’s Bank of China will hand over the balance of profits to the central government according to law this year, with a total amount of more than 1 trillion yuan, mainly used for tax refunds. and increase transfer payments to local governments to support the relief of enterprises, stabilize employment and protect people’s livelihood.
The PBC’s balance profit is mainly derived from the operating income of foreign exchange reserves in the past few years, and it will not increase the burden of taxation or economic entities, nor is it a fiscal deficit. The People’s Bank of China shall turn over the balance of profits to the central finance in accordance with the law, which will not cause the finance to overdraft to the central bank. Balanced profits are turned over on a monthly basis, and the balance sheet size of the People’s Bank of China remains stable, reflecting the coordination and linkage of monetary policy and fiscal policy, and jointly exerting efforts to stabilize the macroeconomic market.
According to the 2020 annual report of the State Administration of Foreign Exchange, the average rate of return of foreign exchange reserves in the 20 years from 1997 to 2016 was 4.23%, and the average rate of return for the ten years from 2007 to 2016 was 3.42%, which is a good level among global foreign exchange reserve management institutions. And the balance of profits turned over this time comes from these incomes.
Zhang Xu, chief fixed income analyst at Everbright Securities, told the Securities Times reporter that the central bank’s income is generated from the asset side. At this stage, foreign exchange accounts for a relatively high proportion of my country’s central bank’s assets, and the operating income of foreign exchange reserves is also the bulk of the central bank’s revenue. In the asset-side business of placing base currency such as re-lending, re-discounting, open market operations, and medium-term lending facility operations, financial institutions have to pay interest to the central bank, forming the central bank’s interest income from loans to financial institutions and open market operations. In addition, the income from the asset side also includes the interest income from fiscal borrowings and the operating income of gold and silver reserves. The deposit reserves paid by commercial banks are the liabilities of the central bank, and the central bank needs to pay interest to commercial banks according to the nature of the deposit reserves, which forms expenditures. The income generated by the assets and the expenditure corresponding to the liabilities, after deducting various expenses, are the profits of the central bank.
Zhang Xu said that, in a sense, profits are a by-product of the central bank’s duties. my country’s central bank will turn over all the net profit after drawing the total reserve to the central finance every year. Since the outbreak of the new crown epidemic, in order to reserve fiscal policy space, the turn-over of profits has been suspended. This year, the People’s Bank of China handed over to the central government the accumulated profits in the previous stage, totaling more than 1 trillion yuan, helping local finance, especially county and district finance, to ease the pressure of revenue reduction, reflecting the importance of monetary and fiscal policies in stabilizing the macroeconomic market. Coordinate linkage.
The fixed income team of Huatai Securities believes that the ultimate purpose of the profits turned over by the central bank is to form fiscal expenditures. Once the profits turned over are spent, they will be re-released into the market, which will not cause too much impact on inter-bank liquidity.
Relevant funds will be arranged for a substantial increase in local transfers
The Ministry of Finance stated that it is a common practice in my country to arrange for specific state-owned financial institutions and specialized institutions to turn over profits, and it is also an important means of coordinating financial resources and adjusting funds across years, including China National Tobacco Corporation, China Investment Corporation, etc. The People’s Bank of China is also the turning over unit. one.
According to Article 39 of the Law of the People’s Republic of China on the People’s Bank of China, “The net profit of the People’s Bank of China after deducting the annual expenditures from the income of each fiscal year and drawing the total reserve in accordance with the proportion approved by the financial department of the State Council shall be turned over in full. According to the regulations of the central government, the profits handed over by the People’s Bank of my country conforms to the provisions of Chinese laws. It is also a common practice in the world‘s major economies to turn over the profits of the central bank to the finance. The Federal Reserve Act, the Bank of Japan Act, and the Bank of England Act all have similar provisions.
The Ministry of Finance stated that since the outbreak of the epidemic in the 20th century, in order to cope with possible risks and challenges, my country has always reserved policy space for fiscal policy measures. One of the measures reserved for policy space is to suspend the surrender of profits to certain state-owned financial institutions and specialized institutions to meet emergency needs. Therefore, the relevant institutions have formed some surplus profits to be turned over, and these surplus profits should be turned over.
The Ministry of Finance stated that considering the current and long-term perspectives, with the implementation of the new combined tax and fee support policy this year, upon approval in accordance with procedures, certain state-owned financial institutions and franchised institutions will be arranged to hand over part of the balance of profits formed before 2021 this year. These funding arrangements are used to significantly increase transfer payments to local governments, helping local finance, especially county and district finance, to ease the pressure of revenue reduction. The above-mentioned transfer payment funds will be included in the management of the direct mechanism, which will quickly and accurately reach the grassroots level in cities and counties, and directly benefit enterprises and people.