During a traffic-jammed taxi ride near Tiananmen Square in Beijing, Patrick Bolton (Professor of Finance and Economics at Imperial College London) and Haizhou Huang (Managing Director at China International Capital Corporation Limited) found themselves debating the concept of contingent convertible bonds. This conversation led to a radical idea: could fiat money be viewed as a nation’s equity? This question would shape their latest book, Money Capital: New Monetary Principles for a More Prosperous Society, which challenges conventional economic wisdom on monetary policy.
In their recent talk at London Business School hosted by the Wheeler Institute, Bolton and Huang presented their thesis: money, approached through the lens of corporate finance, functions as equity for sovereign states. Their model offers insights into monetary policy, inflation, and economic resilience. The discussion invited economists, policymakers, and students to rethink the fundamental nature of money and finance. The event was hosted by the Dean of London Business School Sergei Guriev. It was moderated by Richard Portes Professor of Economics at London Business School. James Dow, Professor of Finance at London Business School, opened the event. Anna Pavlova, shared closing remarks.
Rethinking Money
Bolton and Huang illustrated the foundation of their model by comparing fiat money to corporate equity, where issuing more money resembles a company raising new shares. “It’s an imperfect analogy, but it works surprisingly well,” Bolton said. Adding, “And opens up new perspectives on how nations manage debt, leverage, and growth.” By applying established principles from corporate finance—like capital structure, debt overhang, and dilution. The authors believe we can better understand inflation and the impact of money supply on economic health.
Money and National Resilience
The authors argue that a currency’s strength is tied not only to the issuer’s fiscal and economic health but also to growth prospects. Huang explained “If a country has strong economic fundamentals and growth opportunities, issuing more money can fund positive net present value projects and expand economic output.”
Inflation, they noted, is not a simple consequence of money creation but depends on how the funds are used. “Issuing money, like issuing new shares, can help grow the economy if invested in productive assets,” Huang continued. However, when funds are directed toward non-productive ends, inflation becomes a real risk. Much like the dilution costs seen in corporate finance.
The Cycle of Fiscal and Monetary Dominance
Bolton and Huang’s discussion explored the cyclical fiscal and monetary dominance shifts observed in large economies, particularly the U.S. and China. They noted that these cycles—spanning 10, 20, or even 40 years. They suggested cycles often alternate between fiscal dominance where government spending drives growth. As well as monetary dominance where the focus shifts to managing money supply. Their research discovered that the transition between these regimes follows a discernible pattern. Fiscal dominance typically ends when countries exhaust their fiscal space, leading to fiscal crises that push economies into monetary and banking-dominant regimes. Conversely, these monetary-banking dominant periods often conclude with financial crises.
Learning from China
China’s experience over the past four decades is a prime example of how permissive monetary policy can foster rapid growth. Provided it is managed with caution and aligned with productive investments. During the event, Huang shared insights on how China achieved high growth rates by balancing domestic money creation with limited foreign debt reliance.
“You can relax financial constrains by issuing equity, by using money to raise output, and you have growth,” Huang noted. This approach has allowed China to sustain growth and minimize foreign debt risks. A strategy that Bolton and Huang see as offering valuable lessons for other emerging economies. They argued that for many low- and middle-income countries, a monetary approach tailored to their growth needs—rather than one designed for advanced economies—could yield better results. This framework, they suggested, fills a gap in monetary policy. Which often overlooks the needs of developing countries by focusing too heavily on models suited for advanced economies.
A New Framework for Monetary Policy
Bolton and Huang’s Money Capital introduce a bold new framework that rethinks the role of money in the economy. By applying corporate finance principles to national finance, the authors challenge conventional views on monetary policy. They offer fresh perspectives on how money can be used as a strategic asset for growth and financial stability. The book invites policymakers and economists to rethink the fundamental nature of money and national finance.
As Anna Pavlova, Professor of Finance at London Business School, captured in her closing remarks. She said: “We’ve all been waiting for a unifying framework that links corporate finance and monetary policy. This book offers exactly that and opens doors to new ways of thinking about growth, stability, and financial resilience.” Through this lens, the book offers new ways to understand economic resilience. It provides a valuable framework for managing inflation, debt, and growth in national economies.
This event was organised in collaboration with AQR, Asset Management Institute at London Business School and was supported by LBS Finance Club.
About the speakers
Haizhou Huang is Managing Director and Management Committee Member at China International Capital Corporation Limited. Huang is a special-term professor at PBC School of Finance at Tsinghua University. He has over twenty publications in leading academic and policy journals. Haizhou has become a leading voice in public and private sector finance in China. Additionally he is the co-author of Money Capital: New Monetary Principles for a More Prosperous Society, a ground breaking new title that offers a new novel perspective, viewing monetary economics through the lens of corporate finance.
Patrick Bolton is the Barbara and David Zalaznick Professor of Business at Columbia Business School and a Visiting Professor of Finance at Imperial College London. He previously held the position of President of the American Finance Association. Professor Bolton specialises in contract theory and its relationship to corporate finance. He has authored numerous books, including Contract Theory (2004), Sovereign Wealth Funds and Long-term Investing (2012), and Coping with the Climate Crisis: Mitigation Policies and Global Coordination (2018), and is the co-author of Money Capital.
Richard Portes, Professor of Economics at London Business School. He is the Founder and Honorary President of the Centre for Economic Policy Research (CEPR) and Co-Founder of Economic Policy. Richard is an elected Fellow of the Econometric Society and of the British Academy. He has been Chair of the European Systemic Risk Board Advisory Scientific Committee, of which he remains a member. Addtionally he is Co-Chair of the ESRB Joint Expert Group on Non-bank Financial Intermediation as well as of the new ESRB Crypto Assets Task Force. He is a founding member of the Bellagio Group on the International Economy and the Euro50 Group. Richard is an Academic Director of the AQR Asset Management Institute at LBS.
Anna Pavlova is a Professor of Finance with an MS from Moscow State University. She has an MA from the New Economic School, and a PhD from the University of Pennsylvania. She is an Editor for the Review of Financial Studies and Programme Director at the Centre for Economic Policy Research (CEPR). Previously she was at MIT Sloan School of Management. Anna’s research focuses on institutional investors, ESG investing, and international market frictions, published in leading journals and featured in major media. She has received an ERC Starting Grant and multiple awards for her work in research and teaching. Anna is currently a Professor of Finance at London Business School.
James Dow holds an MA from Cambridge and a PhD from Princeton, specialising in finance topics like limited arbitrage capital, stock price dynamics, financial fire sales, bubbles, and executive compensation. He has been Editor of the Review of Economic Studies. Holding positions at the University of Pennsylvania and the European University Institute in Florence. His work appears in top journals like the Journal of Political Economy and Econometrica. James has consulting experience in valuation, cost of capital, and corporate governance. He is currently a Professor of Finance at London Business School.
About the author
Juliana Escobar Díaz (LBS MBA 2025) is an Outreach and Communications Intern at the Wheeler Institute for Business and Development. Prior to joining London Business School, Juliana spent four years at McKinsey & Company as a Location and Business Analyst, based in Bogotá. She has a keen interest in business for impact and business as a force for good.