Our study employs a two-country Dynamic Stochastic General Equilibrium (DSGE) model, incorporating international monetary policy spillover mechanisms via the financial channel to analyze the interactions between fiscal expansion and monetary policy in the context of China’s economic structure. We consider an alternative scenario where fiscal revenue relies more on debt monetization to alleviate debt constraints through seigniorage income. When compared with recent empirical evidence from 2019 to 2022, the model’s findings align with several economic variables, including initial spikes in inflation and real interest rates, currency dynamics of depreciation followed by appreciation, and an upsurge in net exports. Based on the model’s findings, an increased reliance on monetizing fiscal sources could potentially lead to several favorable outcomes for the government. These include reduced government debt burdens, lower currency fluctuations, decreased deflation risk, and more stable net exports. Additionally, this approach might mitigate the depletion of net foreign assets. However, practical challenges arise when central banks employ excessive RRR adjustments, potentially favoring state-owned entities, and local government financing vehicles over private sector businesses, thereby affecting resource allocation efficiency. Balancing these considerations is a complex task for policymakers. In conclusion, China’s economic trajectory involves a careful balance of fiscal expansion, debt management, and monetary policy tools. Policymakers must navigate these factors to achieve sustainable economic growth and financial stability.