Currency “Re-Anchoring”: A Transformed Plan for the Ecologicalization of Currency Supply under the New Concept of Development—Article By Yang Shuai and Wen Tiejun

Currently, the dual effects of the globalization crisis and the impact of the epidemic have objectively caused a global industrial restructuring combined with Western new cold war geopolitics, which has posed significant challenges to China’s economy that has already deeply integrated into globalization. The Fifth Plenary Session of the 19th CPC Central Committee proposed to “accelerate the construction of a new development pattern with domestic circulation as the main body and domestic and international circulations promoting each other” in line with the “bottom-line thinking”. In order to comprehensively promote this major strategic transformation, General Secretary Xi Jinping emphasized in his speech at the special seminar for provincial and ministerial-level leading cadres to study and implement the spirit of the Fifth Plenary Session of the 19th CPC Central Committee on January 11, 2021 that we should “accurately grasp the new stage of development, implement new concept of development, and accelerate the construction of a new development pattern.”

Building a new pattern requires an independent currency issuance mechanism and sufficient monetary policy space. This is an important guarantee for unimpeded domestic circulation and a prerequisite for better resisting external risks and more actively playing the role of international circulation. However, under the condition of excessive economic dependence on foreign countries in the past, China has actually formed an institutional relationship between “foreign exchange reserves issuance + land absorption” in terms of currency issuance and real estate capital expansion, which has caused many problems. For example, excessive reliance on foreign exchange deposit issuance will weaken the autonomy of central bank’s monetary regulation. Passive “quantitative easing” will increase excessive liquidity into real estate industry. Improving and perfecting the currency issuance mechanism has become an important aspect of building a new development pattern.

Since 2015, China’s central government has put forward targeted supply-side reforms in industry, agriculture, and finance. The three must be integrated to achieve twice the result with half the effort. Against the background of national ecological civilization strategic transformation and “green water and green mountains are gold and silver mountains” becoming an important development concept, I suggest that we use the new concept of “two mountains” to coordinate financial and agricultural supply-side reforms. We should explore through “ecological industrialization and industrial ecology” to accelerate the value realization of spatial ecological resources, let money “anchor” into the “third market” where ecological resource value is realized, make rural revitalization strategy become a new space for issuing money and absorbing money, organically combine sovereign currency issuance with resource value realization within sovereign scope, and then drive urban-rural factor flow to unimpeded domestic circulation. That is to say, promoting “currency anchoring” in rural revitalization strategy is a key measure to implement new concept of development and accelerate the construction of a new development pattern with domestic circulation as the main body and dual circulation development.

The original “smiling curve of national competition” inherent in international circulation is unsustainable.

Promoting currency supply innovation under the new development pattern requires analyzing it in conjunction with the basic laws of international circulation after world capitalism entered into financial capital stage from industrial capital stage. In this regard, we can analyze it by comparing countries’ comparative advantages participating in global competition through “smiling curve”.

(1) The “National Competition Smiling Curve” formed by currency economy and resource economy occupying the main benefit formation

Currently, the competition dominated by financial capital has formed the basic pattern of competition between national states. Under this pattern, the core country (currency economy) that controls the world settlement currency issuance right has become the dominant force in global distribution, and the country (resource economy) with economic sovereignty that owns strategic resources obtains resource capitalization benefits and forms a squeeze on profits of general manufacturing countries (industrial economy). The distribution of benefits between countries of different economic types is similar to the profit distribution of different links in the industrial chain revealed by the “smiling curve” in the industrial economy field, forming a “smiling curve” of national competition (see Figure 1).

This global differentiation economic pattern is a general law of capitalism from the industrial capital stage to the financial capital stage and also conforms to the inherent law of value flow under global industrial division of labor.

After the Bretton Woods system was dissolved, US dollar credit was decoupled from gold and directly linked to the expansion of national power globally: The Federal Reserve represents private banks to purchase US government bonds and issue US dollars based on this. Debt derived from government credit becomes an anchor for currency issuance. Since then, the US dollar can expand continuously without being restricted by value entities. At the same time, while raising interest rates, the Federal Reserve attracts foreign capital inflows into its domestic financial market. While accelerating financial alienation, domestic industries transfer a large amount of production overseas due to rising costs. The proportion of real industries declines, and national economies are increasingly hollowed out. This has formed a virtual economic form that mainly relies on global settlement currency status to gain benefits through financial markets.

After decoupling from gold, since US dollar lost its gold content, it must maintain US dollar issuance and output circulation and continue to occupy global “seigniorage” by ensuring that strategic resources (energy mainly oil) in major production areas under its control. Thus indirectly anchoring US dollars on strategic resources while maintaining US dollars’ share in international reserve currencies and global trade settlement currencies is America’s core interest. Currently, the US dollar is still the largest payment currency for global trade settlement, accounting for more than 60% of global foreign exchange reserves. Since suppressing competition in emerging economies in finance is related to its fundamental interests, America will spare no effort to maintain this “international order” that gains benefits globally through currency expansion.

Those countries that have strategic resource reserves and can ensure their sovereign development will objectively have opportunities to benefit from US dollar expansion because energy is where most newly issued money is absorbed. When countries with energy sovereignty transfer costs abroad by controlling pricing power, manufacturing countries have to accept price increases and bear input-type inflation costs. For example, over the past decade or so, Russia, Iran, Venezuela and other countries that control resource development rights have objectively obtained huge benefits from rising energy prices driven by US dollar global expansion. This shows that although these resource-based economies are at different stages from America’s already entered currency economy stage, once resource sovereignty falls into national hands or returns to state ownership again, resource capitalization benefits can be directly generated through national monopoly. Although these countries did not originally fall within America’s strategic design for benefiting from its currency expansion, they will objectively combine with America’s currency strategy to maximize national benefits. At the same time, as global industrial transfer progresses and gathers in China, China has become the world’s largest manufacturing country. When China integrates into this globalization pattern in industrial economic form, it will inevitably bear dual costs of input-type inflation and US dollar global seigniorage.

Therefore, when we discuss how to promote domestic monetary supply transformation at a time when global crisis breaks out, we must first consider this structural constraint factor instead of exploring solutions along with strengthening this structure.”

(2) The path of the United States’ transition to a virtualized currency economy is not replicable.

When China integrated into the above-mentioned global competition pattern in the form of an industrial economy, it relied on its strong manufacturing and export capabilities to accumulate a huge amount of US dollar foreign exchange reserves. In other words, China currently has the world’s largest foreign exchange reserves; and because of hedging and issuance, it has created a basic currency and M2 (the ratio of M2 between the two countries was close to 200% in 2018) that far exceeds that of the United States. This means that China has the foundation to leap to a currency economy. Of course, China has always emphasized that finance serves the real economy and cannot replicate the path taken by the United States in turning to a currency economy after economic virtualization.

In the past, the United States was able to maintain a virtualized currency economy largely by relying on the large circulation of the US dollar worldwide. On the one hand, relying on its world settlement currency status, the United States paid for its current account deficit by issuing currency and exporting dollars abroad; on the other hand, through foreign exchange reinvestment in developing countries, dollars flowed back to the United States to support its domestic capital market. In this system, the United States “sheared sheep” and collected “seigniorage” from around the world with its military advantage and monetary hegemony. Developing countries have paid a heavy price for this in terms of resource and environmental costs, as well as social costs resulting from lower labor costs (see Figure 2).

Obviously, China does not have the conditions to integrate resource economies globally by outputting currencies in a one-way manner. In recent years, efforts to settle RMB cross-border transactions with other countries, bilateral agreements with some countries for currency swaps, and some countries listing RMB as their reserve currency are mainly based on China’s strong manufacturing and export capabilities. In other words, RMB internationalization is based on physical and monetary two-way flows rather than other mandatory conditions for integrating other countries’ economic resources.

At the same time, this highly virtualized currency economic model in the United States is also unsustainable. Since the outbreak of Wall Street’s financial crisis in 2008, this parasitic virtual economy’s inherent contradictions have been increasingly criticized worldwide. Therefore, it is difficult for the original international cycle dominated by dollars and resources to continue and even more difficult to replicate.

For motivating domestic circulation, the transformation of currency supply is urgently needed

(1) For domestic circulation it is necessary to consider the establishment of an independent currency issuance mechanism.

In the process of integration into globalization, China has gradually formed a currency issuance system anchored to foreign exchange reserves. At the time when foreign exchange assets accounted for the highest proportion of total assets of monetary authorities, it exceeded 80% (see Figure 3). When China’s basic currency issuance is mainly based on foreign exchange reserves, currency issuance will passively fluctuate with changes in foreign exchange.

Especially when external shocks are encountered, exports decline, and economic downturn expectations increase, the inflow of foreign exchange will decrease simultaneously, which in turn will cause basic currency issuance to decrease and restrict regulating policies that should be counter-cyclical long position.

Taking the Wall Street financial tsunami as an example, after the crisis broke out, China’s exports to the outside world in 2009 dropped by about US$230 billion compared with 2008. When domestic counter-cyclical expansion policies were introduced to deal with the crisis, credit investment faced the embarrassment of “currency anchor” reduction. The amount of foreign exchange assets held by monetary authorities and the total amount of assets began to slow down significantly from 2011 and began to decline in 2014 (see Figure 4). During the Sino-US trade dispute period in 2018–2019, the growth rate of broad money (M2) in China continued to decline during the same period. In November 2018, the year-on-year growth rate once dropped to a low of 7.9%.

In order to cope with the problem of decreasing foreign exchange increment and decreasing basic currency investment along with economic cycles, the central bank created “medium-term lending facilities” (MLF), “standing lending facilities” (SLF), and “mortgage supplementary loans” (PSL), and increased money supply by increasing “other deposit-type corporate debt rights”. Finally, after 2015, the total assets of monetary authorities basically got rid of the situation of declining together with foreign exchange reserves and gradually began to rise (see Figure 4).

From 2010 to 2017, the central bank’s foreign exchange assets only increased by 802.1 billion yuan, while other deposit-type corporate debt rights increased by about 9.2 trillion yuan during the same period. Although the above-mentioned “convenient issuance” has become the main monetary investment tool (currently nearly 30% of basic currency investment comes from convenient issuance), it has played an important role in recent years’ counter-cyclical adjustments. However, “convenient issuance” is after all used as a medium-term adjustment tool and does not have a real value basis for creating incremental basic currency.

Since 2018, the United States has unilaterally launched a trade war and technology war against China. After the global outbreak of COVID-19 in 2020, the global industrial chain has been severely impacted, and economies around the world have fallen into varying degrees of recession. The direct impact on China is that exports have fluctuated sharply. On the one hand, this will reduce the trade surplus under the current account; on the other hand, export fluctuations will directly transmit to the domestic export industry. Relevant enterprises will face market shrinkage and deteriorating operating conditions. Coupled with the early impact of domestic epidemics, a large number of enterprises, especially FDI enterprises, may lose investment, which will cause foreign exchange losses under the capital account. As a result, the current account and capital account will lose a large amount of foreign exchange in sync (during the period of the Sino-US trade dispute in Figure 5, the trade surplus fluctuated sharply and the monetary authorities’ foreign exchange assets continued to decline) .

Therefore, in the long run, China needs to find a reliable “anchor” for currency issuance to hedge against the cyclical risk of the currency issuance system anchored by external reserves. Especially under the impact of the global epidemic and the possibility of intensified strategic containment by the United States, the problem of currency anchoring is more urgent .

(2) The foundation of the domestic circulation is the organic combination of money supply and the real economy.

The foundation of domestic circulation is the organic combination of money supply and real economy . The passive large-scale issuance of basic currency with the growth of foreign exchange reserves not only causes high inflation expectations but also leads to economic disconnection from reality and may form systemic economic risks. Under the mandatory foreign exchange settlement system, every newly added US dollar in foreign reserves will be hedged against an equivalent amount of RMB (basic currency) in China according to the exchange rate. After being magnified by the money multiplier, it has formed a scale of trillions of yuan in currency over-issuance (M2) . China’s surplus has been expanding year by year for a long time, which means that this part of newly issued currency purchasing power has not formed external demand and has subsequently turned into bank deposits on a large scale domestically. When financial volume increases to a certain extent and exceeds that of real economy, financial surplus appears. At the same time, under the development model of export-oriented strategy and government investment-driven economic growth, domestic demand has been weak for a long time, which has led to comprehensive overcapacity and declining profits in manufacturing industry. The combination of these two factors will inevitably cause financial capital to “disengage from reality” and pursue high liquidity for profit.

So in 2014, China continuously introduced a series of innovations to relax financial regulation, including derivative trading, relaxing off-exchange margin trading, and allowing all kinds of private capital to directly enter the virtual sector. Until June 2015, the stock market was once on the verge of “collapse.” After that, almost all funds flowed into the real estate market, bringing about a rapid rise in real estate prices and gradually forming a monetary supply system of “foreign exchange reserves issuance” plus “land absorption.” In this process, two objective consequences have been generated:

On the one hand, passive issuance of base currency would have brought domestic high inflation risks. The reason why China did not experience malignant inflation was that land was formed as an anchor for absorbing monetary expansion. Real estate became the main area for absorbing broad money issuance (see Figure 6, land price index and M2 total growth are synchronized and far exceed the growth rate of monetary authorities’ assets), while also driving asset prices to be artificially high and creating bubble problems.

On the other hand, a huge amount of debt was formed in local credit expansion based on land. As of the end of 2019, the balance of local government debt nationwide was RMB 21.3 trillion, not including implicit debt generated by local financing platforms. This has increased the financial system’s risk exposure.

The ensuing result is that the whole society recognizes the situation where finance is detached from reality and returns to reality. The entire decision-making layer has made policy efforts to return finance to the real economy. However, it is difficult for finance to change its pursuit of high liquidity and profitability. It has become China’s biggest security risk in its economy. Therefore, preventing systemic risks was listed as the first of three tough battles in the report of the 19th National Congress of the Communist Party of China (CPC), among which financial risks are most core.

Especially against the background of epidemic impact and US diplomatic pressure on China, if there is a continuous shortage of liquidity in the real economy and problems with economic detachment from reality cannot be improved, then the risk resistance ability of the entire economic system will sharply decline. At this time, if international capital launches speculative attacks or strategic “opponents” make combined layouts and conduct long-short operations in exchange rates and capital markets, it will cause violent fluctuations in domestic capital markets and even trigger large-scale capital outflows for hedging. Once capital quickly flees and domestic liquidity is sharply shorted, it may first cause a stock market bubble collapse and then intensify rapid depreciation of local currency followed by affecting real estate markets where bubbles are already serious.

The above analysis reflects the bottom-line thinking that the central government has repeatedly emphasized, and is also an analysis based on the general logic of systemic risk transmission under external shocks. However, if this set of monetary supply system that relies on “foreign exchange issuance” and “land absorption” cannot be transformed in time, it will be difficult to cope with major external shocks and prepared strategic attacks.

At the same time, we should also see that China has performed well in this Covid epidemic prevention and control, and the economy has quickly rebounded, becoming a safe haven in the world economic recession. If we can seize this window of opportunity, accelerate the adjustment of the monetary supply model, hedge against the negative impact of declining external demand and speculative capital strategic attacks, we may turn crises into opportunities and form a sustainable development and long-term stability situation. Therefore, it is urgent to unblock the domestic circulation and promote innovation in monetary supply.

China’s experiences in issuing sovereign currencies anchored by real assets.

(1) Issuing currency with real assets is an application of Marxist currency theory

Marx said that “money is naturally gold and silver”, which profoundly reveals the value form that money as a general equivalent should have in exchange. For paper money, Marx pointed out that “paper money is a symbol of gold (or silver) or currency symbol”, which has no value itself and can only circulate because of state coercion, but “the issuance of paper money is limited to the actual circulation of gold (or silver) represented by it”. Whether it is a silver standard system, a gold standard system, a bimetallic standard system, or an international monetary system under the Bretton Woods system that pegs the US dollar to gold, they all follow this basic principle. As long as the issuance of currency is directly or indirectly anchored to precious metals, the currency itself has or symbolizes value (gold content).

Until after the Great Depression of capitalism in the 1930s, most countries turned to pure credit currency. Due to limited reserves of precious metals, it is inevitable for systems anchored to precious metals to exit the historical stage as economic development and transaction volume increase. It’s just that after evolving into credit currency, the problems caused by over-issuance and excessive issuance are extremely prominent.

According to Marx’s law of currency circulation rules, the amount of currency required for commodity circulation during a certain period of time is directly proportional to the total amount of commodity prices to be realized, inversely proportional to the circulation speed of the same unit currency, combined with two most basic functions of currency as a value scale and circulation means. From this perspective, based on real resource asset values ​​and issuing currencies based on their trading volume has essential progressive significance compared with credit currency systems. This is also our basic basis for proposing to promote transformation of monetary supply sovereignty.

(2) Relying on real assets for stable currency was an effective experience for China to deal with crises

In the history of China’s red currency and financial development, relying on controllable materials by political power to maintain stable issuance of currencies is a basic experience.

As early as during the revolutionary war period, various base areas faced severe external environments and mainly relied on materials as their basis for issuing border area currencies or stabilizing currency values ​​with materials. In 1938, Mao Zedong and other leaders emphasized when proposing three principles for border area monetary policy in Jin-Cha-Ji border area that border area paper money should have reserves: first, goods, especially industrial products; secondly Wei-Manchukuo currency (Wei Bi); thirdly ROC fiat currency (Fa Bi). In the early 1940s, serious financial turmoil occurred in Shaanxi-Gansu-Ningxia border areas. At that time, Chen Yun guided financial work in border areas and explored ways to issue “commercial circulation coupons” based on materials controlled by border trade companies. By linking commercial enterprise circulation coupons with border currencies (Bian Bi) indirectly through exchange between them to stabilize border currency values. After financial order stabilized, circulation coupons gradually withdrew from circulation and border currencies’ circulation status became stable. The materials controlled by border areas were the basis for coping with financial turmoil at that time and stabilizing border currency circulation.

During this period, Xue Muqiao also adopted a material-based approach when guiding Shandong base area’s currency struggle. “For every 10,000 yuan we issue,” he said, “at least 5,000 yuan will be used to purchase important materials such as grain, cotton, cotton cloth and peanuts.” By selling and purchasing materials back and forth to circulate and release currencies. The result was that Shandong anti-Japanese base areas successfully maintained relatively stable currency issuance without gold or foreign exchange reserves by anchoring.

“At the beginning of the founding of New China, it was also based on the absolute abundance of materials in hand, and launched a large-scale cooperative transportation throughout the country, concentrating “forces” to win the “rice and cotton war” with speculators and suppressing the trend of rising prices in major cities. New China also relied on material reserves to implement “three-fold reality”: using “government bond reality” (issuing government bonds valued in kind) to reduce the pressure of currency over-issue, using “wage reality” (implementing wages valued in kind) to ensure basic living materials price stability, and using “savings reality” (conducting deposit and exchange business in kind) to stabilize social expectations for RMB currency value. This cured the inflation problem that had accumulated for more than ten years since 1936 when the Kuomintang abandoned the silver standard system and issued fiat currency, and finally made RMB stand firm in society and smoothly issue circulation.

Undoubtedly, in this process, material reserves are the fundamental guarantee for stabilizing prices, stabilizing monetary and financial order, and then realizing stable issuance of RMB.

It can be seen that “material basis” is an effective experience in maintaining stable currency issuance in contemporary Chinese financial history and an application of Marxist monetary theory.

The path of promoting ecological resource value realization to promote currency supply ecological transformation

(1) From gold and silver standard to “gold and silver mountain standard”

Currently, China has sovereign resources with great value that are being widely promoted to the market. These are spatial ecological resources distributed in vast rural areas. With the deepening of the concept of “green water and green mountains are golden mountains and silver mountains” in practice, the value of ecological resources is increasingly prominent. This is also an objective result of the law of economic and social development and natural laws in China.

Firstly, under the background of macro surplus and economic detachment from reality to virtuality, urban investment space is squeezed out, and a large amount of capital urgently needs to find a safe investment field. Secondly, China has become the country with the largest total number of middle-income groups in the world. Middle-income groups generally tend to consume green products and pay attention to sustainable development of ecological environment. Thirdly, with economic and social development, a good ecological environment has become an increasingly scarce resource. Due to its natural potential for preservation and appreciation, ecological resources are called “green banks”, which are very consistent with investors’ pursuit of stable expected returns under capital surplus pressure.

“Gold and silver mountain” (including spatial ecological resources such as mountains, waters, forests, fields, lakes and grasses) as a scarce resource attribute is becoming more and more obvious. In theory, the transaction demand generated by its capitalization process can also support currency issuance circulation. However, ecological resources are different from traditional currency anchors such as precious metals and energy. They have highly non-standardized characteristics and are difficult to price according to general supply-demand principles in markets like traditional standardized commodities. Therefore, to realize the value realization of spatial ecological resources, its pricing problem must be solved first so that it can play a role in issuing and absorbing currency under tradable conditions.

Based on the physical properties (integrity and externality) and property rights attributes (dispersed ownership under collective ownership) of spatial ecological resources, this article proposes a general design for issuing and absorbing currency based on spatial ecological resources (see Figure 7), including two complementary parts: one is a currency issuance mechanism based on the value of ecological resources held by collective economy; The second is a three-level market design that can promote pricing and trading of rural spatial ecological resources. The former plays a role in creating liquidity (shown in the right half of Figure 7), while the latter plays a role in creating investment opportunities and absorbing liquidity (shown in the left half of Figure 7).

(2) Sovereign currency issuance mechanism based on spatial ecological resources

1. Basic principles for issuing currency based on ecological resources

The most reliable basis for issuing basic currencies is assets or physical objects with real value. According to Marx’s law of value, prices of these assets or physical objects may fluctuate with changes in market trading conditions but will have a relatively stable bottom-line value. Therefore, what can be used as a basis for issuing currencies is the bottom-line value of resource assets held by collective economic organizations based on agricultural prices that determine total rural ecological resource values. This bottom-line value is an upper limit on basic currency issuance.

According to this, the monetary multiplier of the basic currency issued by the central bank through this channel is related to the market transaction activity of rural ecological resource products. The more active the transaction is, the larger the cumulative transaction volume is, and the larger the monetary multiplier is.

In theory, if the central bank issues currency based on rural ecological resources, it must first convert the ecological assets under collective ownership in rural areas into central bank assets, that is, by holding debt claims of rural ecological assets (for convenience of discussion, it may be called “two-mountain bonds” of collective economy), while supplying money to asset owners.

Therefore, I suggest that the central bank authorize the establishment of one or several official issuing agencies, which are specifically responsible for issuing and original transactions of “two-mountain bonds”. The front end of this agency can connect with the grassroots rural collective economic asset management platform through county-level platform companies to approve and issue “two-mountain bonds” applied by collective economic organizations and provide debt financing for rural collective economic organizations. Collective economic organizations obtain funds for basic investment and maintenance investment in ecological resource development within the village area, pay resource use rents to members, and pay for non-direct operating projects such as repurchase in off-market.

The back end of the issuing agency obtains debt financing through two channels (based on risk diversification): one is to obtain basic currency from the central bank; the other is to directly issue bonds in financial markets to obtain financing.

2. Currency market based on ecological asset debt.

The official issuing agency should report and approve qualified collective economic “two-mountain bonds” to the central bank. Assuming that the total amount approved by the central bank is 1 (as shown in the right half of Figure 7), according to risk assessment, the central bank can release corresponding basic currency by holding a certain proportion of “two-mountain bonds” (assuming that proportion is x) to official issuing agencies. In theory, as long as a market for rural ecological resource development transactions is formed, there is no risk of inflation or devaluation for this part of currency released by central bank. Moreover, due to public ownership nature of rural collective economy, even if individual collective economic organizations have operating risks, it is easier to design reasonable risk avoidance mechanisms within framework of basic rural economic system.

For remaining proportion (1-x) of approved “two-mountain bonds”, central bank can release corresponding scale of basic currency through reverse repurchase operations to designated banks with qualifications and specify that this currency will be used for credit issuance to ecological industry development subjects and support investment subjects entering secondary and tertiary markets for ecological resource development; conversely, it can also recover liquidity through repurchase operations.

Therefore, total amount of basic currency issued by central bank through two channels is consistent with total value of resource value relied on by collective economic “two-mountain bonds”. After releasing liquidity through two channels, central bank has two functions: one is to diversify risks; secondly, after introducing commercial banks, it can normalize market liquidity regulation through repurchase operations.

3.The connection between the currency market and the capital market based on ecological resources.

The liquidity of the (1-x) proportion of the scale released by the central bank to banks is used for ecological resource development. Therefore, it can drive social investment entities to participate in practicing the “two mountains” concept and implementing “two integrations” (industrial ecological and ecological industrialization) operations. Targeted credit for ecological development actually plays a role in connecting the currency market and the capital market here.

The official agency holding two-mountain bonds has already obtained basic currency from the central bank in x proportion; in addition, (1-x) proportion of “two-mountain bonds” can issue ecological wealth management products through designated banks with qualifications, directly facing financial market financing. Because the ecological assets relied on by the “two-mountain bonds” of collective economy have guaranteed value, the risk rating of this ecological wealth management product is very low and can refer to the issuance and underwriting model of national debt. Issuing ecological wealth management products can also effectively guide capital in the current virtual economy field to flow orderly to the real economy.

(3) Promoting the value of space ecological resources in the third-level market

Due to natural diversity and multiple positive externalities, ecological resources are scattered in rural areas. If individualized market transactions are simply promoted, it will inevitably generate extremely high transaction costs and “negative externalities”, causing market failure. Therefore, systematic development and protection can only be carried out on the basis of resource integration.

For this reason, a design of a three-level capital market is needed to meet the transaction needs of different stages such as large-scale resource allocation, ecological resource capitalization, and ecological asset securitization (as shown in the left half of Figure 7).

1.Primary market: The basic ownership relationship of resources is straightened out by village collective economic organizations, forming a large-scale trading subject externally.

In 2019, Central Document №1 proposed that we should “summarize and promote the experience of transforming resources into assets, funds into shares, and farmers into shareholders” (hereinafter referred to as “three transformations” at the village level). By establishing a village-level asset management company, we can integrate scattered ecological resource ownership within the village in the form of stock cooperation.

Since the physical information and value information of ecological resources are highly symmetrical within the village, members enjoy equity in collective economic organizations, and do not involve value-added issues arising from further development of ecological resources. Therefore, internalized “transactions” of ecological resources can be carried out according to the price of primary industry (agriculture) factors within the village. In this way, through the primary market, the most numerous and dispersed subjects involved in spatial resource development are integrated internally through collective economy.

In specific operations, various departments of the government can unify financial investment as “special funds” into collective economic organizations to strengthen collective property. The specific situation of each village can be quantified into shares for villagers. The government holds nominal ownership rights, collectives obtain usage rights, and villagers obtain income rights. On this basis, villagers are attracted to enter stocks with resources according to prescribed proportions or cash stocks to form close property relations with collectives. The collective economic organization of villages acts as a large-scale trading subject to dock with external subjects, which greatly reduces transaction costs for integrating basic ownership of ecological resources.

2.Secondary market: County- and township-level platform companies dock social investment to promote ecological resource capitalization.

After resource integration within villages is completed, collectives can serve as large-scale trading subjects to enter stocks with their own assets, resources and funds into comprehensive development platforms at county and township levels. The rural collective economic operation management platform at county and township levels serves as a development subject, which not only improves negotiation capabilities with external parties but also enhances professionalism in development. It is more conducive to resource integration in overall development involving cross-village domains. Then county- and township-level development platforms dock external investment to form development entities according to modern property rights structures and realize tertiary development of spatial ecological resources.

Except for basic construction parts invested by financial input from governments that have already become valuable assets with clear prices, natural ecological resource parts have value-added space when priced at tertiary levels after being priced at primary industry levels during integration within villages. This process creates new space for absorbing currency. Based on currency issued by relying on ecological resources, directional supportive credit (specific design shown in right half of Figure 7) can be injected into ecological resource development.

In 2019 Central Document №1 also proposed that we should “improve rural collective property rights and actively explore methods for pledging loans with collective asset equity”. In operation, county-level platform companies can be promoted to transform towards ecological development and cooperate with various financial institutions within counties to provide investment and financing services for rural revitalization through embedding various financial tools such as guarantees, insurance trusts and investments; or local agricultural guarantee companies or self-owned funds can be used first to enhance credibility and disperse bank risks; while financial credit can serve as a reference for pricing tertiary development of ecological resources.

On this secondary market, promoting ecological resource capitalization through tertiary development is conducive to enriching collective economy; operating income obtained by collective economic organizations through equity or “debt” can also be distributed internally according to member equity. In addition, multi-format development platforms jointly established by township-level agricultural institutions and social investment entities will also alleviate pressure on grassroots financial input during implementation of rural revitalization strategies. These measures are highly consistent with requirements for developing new types of collective economy in new periods emphasized repeatedly by Party congresses since the 19th National Congress of CPC as well as requirements for increasing farmers’ property income

3. Third market: Development of regional capital markets to promote ecological asset securitization.

On the basis of the relatively mature “secondary market”, further innovative financing methods can be developed to explore and develop regional capital markets, promote ecological asset securitization, and form a direct financing mechanism for ecological resource development.

In 2019, Central Document №1 proposed to “improve the rural property rights transfer trading market and promote the open and standardized operation of various types of rural property rights transfer trading.” Specific operations can consider establishing a risk board transaction for revitalizing local spatial ecological resource value-added products in the local property rights trading market at the county or larger regional level. It can also refer to off-market transactions in the capital market, introduce stocks, futures and other means to make local ecological assets become products that can be split and continuously traded. After being traded by institutional investors with official backgrounds within the region, trading prices are launched to attract external investors.

Given that any transaction in any capital market has relatively higher risks, reasonable repurchase mechanisms must also be designed. When affected by economic cycles or market downturns, collective economic organizations can act as resource owners and repurchase at a bottom price. This will further expand the scale of collective economic assets and help achieve the dual effects of consolidating the socialist basic economic system and maintaining stability in the ecological capital market during economic downturns. In this way, the third-level market based on ecological resources and currency issuance is organically combined.

Suggestion for overall thinking of currency issuance ecological transformation.

Overall thinking of the ecological transformation of currency issuance.

Under the dual impact of epidemic shocks and external strategic pressure, China’s pressure to prevent systemic risks has increased, and domestic monetary supply transformation is imminent. On the basis of maintaining a clear understanding of global competition patterns and fully inheriting and promoting effective experience in China’s red financial history, combined with current domestic economic and social development conditions and national strategic transformation background, I propose the following suggestions for overall thinking:

(1) Provide top-level institutional support for currency issuance ecological transformation

Currency issuance ecological transformation needs top-level institutional support as an implementation guarantee, especially including two points: First, set up special provisions in the “People’s Bank of China Law of the People’s Republic of China” to allow the central bank to hold “two-mountain bonds” held by collective economies as legal basis for monetary authorities to provide basic currency through holding “two-mountain bonds”. Second, authorize the central bank to establish one or several official management agencies responsible for issuing and trading “two-mountain bonds” and formulating corresponding transaction rules.

(2) Straighten out basic ownership relationships in ecological resource monetization

Firstly, package government basic construction investment into collective economy shares. The state reserves ownership rights, collective ownership rights are owned by rural collectives, and income rights are quantified according to shares among members. Secondly, combined with “three changes” at village level, attract villagers to do stocks according to agreed proportions for resource-based assets owned by households into village collectives so as to straighten out basic ownership relationships in ecological resource development. On this basis, collective economic restructuring can be carried out into an asset management company at village level with “special legal person” being regarded as a market economy subject status equivalent to “agricultural-related enterprise”.

(3) Improve county- and township-level rural asset management system and establish “two-mountain bond” issuing agency

Firstly, establish an intermediary platform at township level. Rural comprehensive service centers can be reorganized from township agricultural stations responsible for clearing registration of collective assets. Secondly, establish county-level rural collective economic asset financing and management platform companies. Township service centers can add sub-companies under county-level platform companies’ brands that connect with various investment entities to form an entity that develops ecological resource markets while conducting business on secondary- and third-level markets. At the same time, they are responsible for collecting information on “two-mountain bonds” in collective economic transactions and conducting financing activities with official management agencies and banks.

(4) Launch pilot work based on issuing currency with ecological assets

Firstly, choose locations with better realistic conditions such as stronger collective economic strength or better ecological resource development foundation where good work foundations have been laid for operating managing collective rural assets at domain level as pilot locations for issuing “two-mountain bonds” based on ecological assets. Secondly, gradually expand pilot scope on basis of controllable risks while banks simultaneously open business for issuing eco-financial products. Finally, perfect supporting legal systems on basis of mature conditions to form a system.

Through the above operations, a benign large cycle of ecological development, ecological consumption and ecological currency supply can be formed in the construction of the third-level market of ecological resources and currency issuance, and various policy effects can be produced: promoting the development of ecological civilization and rural revitalization strategy in a complementary way, developing and strengthening new collective economy, consolidating the ownership basis of the basic socialist economic system, and organically combining sovereign currency issuance with sovereign resource value realization to lay a solid foundation for coping with external strategic pressure.

Original Chinese source: https://www.aisixiang.com/data/139816.html