THE PEOPLE'S BANK OF CHINA

Group 4

outline

• Historical Development
• Independence Level with the Government
• Operational Structure
• Tools, activities & effectiveness in monetary policies
• Role in Banking Regulations

historical development

HISTORICAL DEVELOPMENT

► 01/09/1948 : The establishment of the PBC

►1950-1978 : The PBC was the only bank in the People's Republic of China and was responsible for both central banking and commercial banking operations.

►1980s : The PBC were split off into 4 independent but state-owned banks.

*18/03/1995: The PBC's central bank status was legally confirmed.

►1998 : The PBC underwent a major restructuring.

►03/2003: The supervisory responsibilities of the PBC was separated for the banking institutions, asset management companies, trust and investment companies and other depository financial institutions.

►27/12/2003 : The role of the PBC in the making and implementation of monetary policy, in safeguarding the overall financial stability and in the provision of financial services has strengthened

INDEPENDENCE LEVEL

CBI INDEX
Central Bank Independence Index (by De Souza in 2001) covers 9 questions, 3 catergories
Ranges from 0 to 1

categories of cbi

• Personal Independence
• Financial Independence
• Functional Independence

PBC's PERSONAL INDEPENDENCE
- PBC’s governor and deputy governors are nominated by the State Council without clear requirement of qualification
- The State Council has its leeway to nominate and appoint persons who are “loyal” to the government.
Score: 0.75 point

PBC's FINANCIAL INDEPENDENCE
- Central bank refinancing can be divided as two types: for monetary policy execution and for financial stability
- A large part of annual refinancing belongs to policy lending to the projects as public utilities in poor area, supporting loss-making state owned companies, subsidy to the agri-business, and infrastructure building -> a secret to the government
Score: 1.00 point.

PBC's FUNCTIONAL INDEPENDENCE
- most of the important decisions of monetary policy fall into the control of the State Council.
- there is a conflict between the objective to “maintain the value of currency” and to “promote economic growth”
-> difficult for the PBC to fulfill its function of maintaining the value of currency.
Score: 1.66 points.

total:

Operational Structure

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Structure of pbc

• 2 operation offices
• 9 regional branches
• 303 municipal sub-branches
• 1809 county-level sub-branches
• 6 overseas representative offices

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tools, activities & effectiveness

three main tools

• Open market operation - OMO
• Discount rate
• Reserve requirements

DISCOUNT RATE

On March 25th 2004, the PBoC introduced ‘floating rate’ central bank rediscount lending

The PBoC added 63 bps to the benchmark discount rate for financial institutions

27 bps to the standard rate to take the central bank’s core rediscount rate to 3.24%.

Roles of PBC

ROLES OF PBC:
1. Planning and implementing the national monetary policy

2. Supervising the operation of banking system

Planning and implementing the national monetary policy
WHY???
►issuing money
►affecting on the activities of the banking system

Zhou Xiaochuan

Supervising the operation of banking system
►provides a regulatory and supervisory framework for prudential supervision and a fair and transparent financial market

►guarantee depositors and other creditors funds at banking and credit institutions

►building a strategic national deposit insurance.

►strengthen control of financial risks in the field of economic and industrial core

►quickly resolve the difficulties encountered to prevent a systemic crisis and domestic financial sector