US money printing to fund deficit poses major risk for 2021, says ex-China central bank official

Zhou Xiaochuan, who led the People’s Bank of China between 2002-18, says modern monetary theory will have ‘side effects’

Global inflation, asset bubbles and the consequences of quantitative easing will be major issues next year, the economist says

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Ex-Chinese central bank governor Zhou Xiaochuan has warned about potential side effects from US money printing. Photo: SCMP

Published: 5:30pm, 17 Sep 2021Updated: 9:48pm, 17 Sep 2021

A former Chinese central bank governor has warned there will be no free lunch following unprecedented money printing by the United States and blind faith in modern monetary theory, warning of potential side effects and labelling them as one of six major issues facing China and the world next year.

The comments by Zhou Xiaochuan, who led the People’s Bank of China (PBOC) between 2002-18, come as Beijing puts up higher barriers to protect the world’s No 2 economy from damaging capital flows and market turbulence, while at the same time stressing the importance of multilateralism.

Zhou called on the central government to uphold global cooperation, especially ahead of the Group of 20 (G20) summit in Rome next month, saying conflict in trade, finance and technology will hurt the interests of all nations.

Despite growing tensions between China and the US, President Xi Jinping has in recent years made efforts to portray China as torch-bearer for multilateralism, especially during the Trump administration’s “America First approach” to foreign policy and trade.

China doubled down on its commitment to multilateralism when it announced on Thursday it had formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact abandoned four years ago by the US.

“People have paid particular attention to every move of the US Federal Reserve and the discussions over modern monetary theory (MMT) that believes massive money printing to fund fiscal deficits will probably not generate side effects,” Zhou said on Wednesday at an event organised by the Boao Forum for Asia, a platform for China to explain its policies to the world.

“The Chinese proverb that pies fall from the sky generally refers to a kind of illusion. As for whether there will be free pies [following Fed policy] … we will see ourselves.”