If there is one thing learned from Carbaugh (2004) about balance of payment adjustments, it is that it is very controversial as to what is the best way to influence the balance of payments. However, there are many possible tools that affect the balance of payments, it just not very easy to predict exactly what the effect will be. Raising interest rates, easing or restricting the money supply, increasing or decreasing the exchange rate (in a pegged-exchange-rate situation, such as China), and the extension or tightening of credit are some of the tools often employed by nations to adjust the balance of payments.
             Typically, China has typically relied on untraditional administrative edicts, such industry-specific constraints on the quantity of credit and project finance, to control its economy and, hence, its balance of payments. However, based on my research, it is my opinion that China is just starting to look at more traditional instruments for balance of payments adjustment. For example, an article from the China Economic Information Network from August 16, 2004, specifically states that China's central bank is enhancing its monetary policy. To accomplish this, the Chinese central bank, known as the People's Bank of China (PBOC), began a regular issue of treasury bills each week on Thursdays as of July, 2004. This was in addition to the existing policies of the POBC's weekly issue of central bank bills, on Tuesdays, bond repurchase operations, on Thursdays, and short-term bill repurchase operations, on Tuesdays. This addition of treasury-bill issuance (and the corresponding repurchasing) gives the PBOC an additional tool for easing credit to reduce a surplus or increase a deficit or tightening credit to increase a deficit or reduce a surplus. It is my belief that the PBOC's enhancement of monetary policy is a step in the direction of China looking at more global-trade friendly approaches to the balance ...