The People's Bank of China (PBOC), founded in 1948, performs the function of the central bank, through the control and supervision of the domestic financial sector and the China's Banking System. The PBOC represents China in an official international financial organizations such as the International Monetary Fund - IMF, the World Bank and the Asian Development Bank (ADB). As a result of the reforms, the PBOC carry out its tasks according to Western models of autonomy, control and supervision of the banking system. The main PBOC functions include: formulation and direction of monetary policy to maintain financial stability and stimulate economic growth; formulation of the credit plan; setting of interest rates; financial market regulation; regulation of financial markets; issuance and administration of the circulation of Renminbi; regulation of interbank lending and interbank bond market; management of foreign official exchange; recording of transactions in foreign currencies and management of the State treasury.
Evolution of PBOC functions. The main reforms
The PBOC is established on December of 1948 after the victory of the Chinese Communist Party and the creation of the People's Republic of China. Until 1978, the People’s Bank of China is the only institution authorized to carry out financial transactions. Controlled directly by the Ministry of Finance, it coordinates the entire Chinese banking system with the role of the central bank and commercial bank. The granting of credit is driven by political power and until the eighties the PBOC's main task is to support the Government's national planning, through the management of more than 90% of total financial assets.
Since 1979, the Deng Xiaoping reforms for the development of a Socialist Market Economy, help to reshape the functions of the PBOC. It’s for this reason that in 1984 the PBOC is formally recognized as the central bank and private of its commercial institution functions. These functions are assigned to the four State commercial banks (so-called Big Four): Bank of China (BOC), China Construction Bank (CCB), Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC). It’s permanently deleted the system single bank and PBOC responsibilities concern now has control of the money supply and the management of foreign exchange and foreign exchange reserves. Moreover, in those years, the PBOC becomes the main instrument for funding public companies, previously funded directly by the State through a grant transfers. The Reform of replacement of grant credit of 1984, in fact, assigns the task of financing public enterprises through provision of credit and stopped transfers to State grant. These functions are now performed by SOB (State Owned Bank) operating under the direct supervision of provincial and local offices PBOC.
In 1995, with the law of the People's Bank of China, which was adopted by a decision of the State Council1 on the reform of the banking sector, the PBOC is invested with new powers modeled on the Federal Reserve System see Shomali (2010) .
The PBOC should take responsibility for his actions only to the State Council. Therefore it becomes free from the interference of other financial institutions and local governments. The 1995 changes, therefore, ensure the PBOC formulation and implementation of an independent monetary policy. Also, are governed relations with commercial banks which are subject to the PBOC control and supervision.
The Law of the People's Bank of China extends some of the powers of the PBOC and restricts other, such as the prohibition of granting facilities for banks and to extend loans to local governments and departments. It’s just at the cities and provinces level that the power of fixing credit quotas is distorted by local branches tendency to orient it according to its own independent criteria, although these powers are the prerogative of the Central Bank and the government. For these reasons, in 1998 are replaced branches in the provinces and cities with nine regional offices exclusively, in order to loosen the influence of local authorities in the conditioning of the decisions of PBOC credit policy.
In 2003, after the entry into the World Trade Organization (WTO), the supervision functions of the PBOC are "eased" by creating of China Banking Regulatory Commission (CBRC). The CBRC activities provide control and regulation of the banking system according to the criteria of Basel I. The establishment of ad hoc Surveillance Agency has the intent to provide certain institutional references for local actors and foreign producers. Also in 2003, the amendment of the Law of the People's Bank of China in 1995, changes the status of the PBOC. This changes attribute primary task of macroeconomic management, particularly with respect to exchange rate policy and reserve management and strengthens its role in the implementation of monetary policy and in the provision of financial services. They are definitely limited the PBOC functions explained in the statute in 14 points:
- Drafting and enforcing relevant laws, rules and regulations that are related to fulfilling its functions;
- Formulating and implementing monetary policy in accordance with law;
- Issuing the Renminbi and administering its circulation;
- Regulating financial markets, including the inter-bank lending market, the inter-bank bond market, foreign exchange market and gold market;
- Preventing and mitigating systemic financial risks to safeguard financial stability;
- Maintaining the Renminbi exchange rate at adaptive and equilibrium level; Holding and managing the state foreign exchange and gold reserves;
- Managing the State treasury as fiscal agent;
- Making payment and settlement rules in collaboration with relevant departments and ensuring normal operation of the payment and settlement systems;
- Providing guidance to anti-money laundering work in the financial sector and monitoring money-laundering related suspicious fund movement;
- Developing statistics system for the financial industry and responsible for the consolidation of financial statistics as well as the conduct of economic analysis and forecast
- Administering credit reporting industry in China and promoting the building up of credit information system;
- Participating in international financial activities at the capacity of the central bank;
- Engaging in financial business operations in line with relevant rules;
- Performing other functions prescribed by the State Council.
The PBOC implement monetary policy under the leadership of the State Council and shall perform his duties in an independent manner, free from the interference of local government, public bodies or any other public or financial. The PBOC, in fact, directly relates only to the State Council decisions on interest rates and exchange rates. The PBOC is also required to submit to the Committee of the National People's Congress a report on the conduct of monetary policy and the performance of the financial sector.
The internal structure is composed of the governors and deputy governors. The PBC candidate governor is proposed by the State Council and approved by the National People's Congress. Subsequently, the governor of the PBC is appointed and may be removed from his duty by the President of People’s Republic of China.
The deputy governors of the PBC are appointed and may be removed from their office by the State Council.
The governor responsibility is to supervise the overall work of the PBC while the deputy governors provide assistance to their governor to fulfill its responsibilities.
The PBOC is composed of 18 departments:
- General Administration Department: Responsible for organizing and coordinating the daily work of the PBC head office;
- Legal Affairs Department: Responsible for drafting financial laws and regulations related to the functions of the central bank; providing interpretation for the orders and rules issued by the PBC; providing financial legal advisory services, handling relevant financial legal affairs; handling administrative appeals and responding to legal complaints against the PBC;
- Monetary Policy Department: Responsible for setting the intermediate target of monetary policy and coordinating efforts to achieve the target;
- Financial Market Department: Responsible for formulating administrative rules on the inter-bank lending market, inter-bank bond market, inter-bank foreign exchange market and gold market;
- Financial Stability Bureau: Responsible for studying the issues concerning coordination of development of banking, securities and insurance industries, and in cooperation with relevant authorities, drawing up reform and development plans of the financial industry; assessing systemic risks in the financial sector, and proposing and implementing policy measures to prevent and resolve systemic financial risks;
- Financial Survey and Statistics Department: Responsible for collecting, compiling and analyzing financial data and other economic information; developing the overall statistics system for the financial sector;
- Accounting and Treasury Department: Responsible for examining the accounting standard and system of the banking sector; coordinating the implementation of PBC's financial accounting system;
- Payment System Department: Responsible for the design of the financial accounting system of the PBC and the construction of China National Advanced Payment System (CNAPS);
- Technology Department: Responsible for technological services in the planning, design, construction and maintenance of the PBC's office automation system and business operation system;
- Currency, Gold and Silver Bureau: Responsible for the production, storage, transportation, renewal and disposal of banknotes and coins;
- State Treasury Bureau: Responsible for managing the State treasury.
- International Department: Responsible for official contacts and business cooperation between the PBC and the international financial organizations, foreign central banks, and financial authorities in Hong Kong and Macao SARs and Taiwan province;
- Internal Auditing Department: Responsible for establishing working procedures, rules and practices for internal auditing of the PBC;
- Personnel Department: Responsible for the formulation and implementation of the PBC policies and rules on personnel management;
- Research Bureau: Responsible for research into China's industrial policies and following up development of economic activities in the industrial, agricultural, fiscal and trade sectors;
- Credit Information System Bureau: Responsible for managing credit information system;
- Anti-Money Laundering Bureau: Responsible for anti-money laundering activities in the People's Republic of China; conducting studies on and establishing anti-money laundering rules and policies for financial institutions;
- Education Department of the CPC PBC Committee: Responsible for the publicity and education of the CPC doctrines and principles in the PBC, promoting staff morale and the construction of spiritual civilization;
1The main administrative authority of the People’s Republic of China and is the executive power.
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THE PEOPLE’S BANK OF CHINA, http://www.pbc.gov.cn
Editor: Giovanni AVERSA