People's Bank of China

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People's Bank of China
Peoples Bank of China logo small.png
Founded 1948
Headquarters Beijing, People's Republic of China
Key People Zhou Xiaochuan is Governor of the People's Bank of China
Website [1]

The People's Bank of China (PBC) is the central bank of the People's Republic of China. Under the guidance of the State Council, the PBC formulates and implements monetary policy, prevents and resolves financial risks, and safeguards financial stability. From the period of April of 2006 to August of 2007 the central bank raised key interest rates six times. It later announced it would establish a central clearinghouse for the interbank trading market.

History

The PBC was established on Dec. 1, 1948 based on the consolidation of the former Huabei Bank, Beihai Bank and Xibei Farmer Bank.[1] In September of 1983, the State Council decided to have the PBC function as a central bank.

On March 18, 1995 the Law of the People's Republic of China on the People's Bank of China passed by the Third Plenum of the Eighth National People's Congress legally confirmed the PBC's central bank status. In 1998, the PBC underwent a major restructuring. All provincial and local branches were abolished, and the PBC opened nine regional branches, whose boundaries did not correspond to local administrative boundaries.[2]

In March of 2003, the First Plenum of the Tenth National People's Congress approved the Decision on Reform of the Organizational Structure of the State Council, separating the supervisory responsibilities of the PBC for the banking institutions, asset management companies, trust and investment companies and other depository financial institutions. Instead, the China Banking Regulatory Commission was established to supervise the financial industry.

On Dec. 27, 2003, the Standing Committee of the Tenth National People's Congress approved at its sixth meeting the amendment to the Law of the People's Republic of China on the People's Bank of China, which strengthened 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.

Operations

Under the leadership of the State Council, the PBC implements monetary policy, performs its functions and carries out business operations independently according to laws and free from intervention by local governments, government departments at various levels, public organizations or any individuals.

The PBC needs to report to the State Council its decisions concerning the annual money supply, interest rates, exchange rates and other important issues specified by the State Council for approval before they are put into effect. The PBC is also obliged to submit work report to the Standing Committee of the National People's Congress on the conduct of monetary policy and the performance of the financial industry. All capital of the PBC is invested and owned by the state.

Management

Policy Actions

In June 2015, the bank cut both its benchmark interest rates and the amount of reserves certain banks are required to hold. The bank said the steps were taken to lower borrowing costs and stabilize growth in the Chinese economy. The PBOC cut its one-year benchmark lending rate by a quarter of a percentage point to 4.85% and its one-year deposit rate by the same scale to 2%. The PBOC has rarely cut both interest rates and the reserve-requirement ratio on the same day. The last time it did so was in October 2008 in the midst of the global financial crisis.[4]

In July of 2012, the People’s Bank of China cut interest rates for the second time in four weeks, lowering interest on one-year loans to 6 percent and saying that banks could discount rates by as much as 30 percent below that benchmark, an increase from a 20 percent allowable discount. Analysts said the changes probably reflected uncertainty about China’s economic growth in the second quarter.[5]

The People's Bank of China, on Oct. 19, 2010, raised interest rates for the first time in nearly three years. At the time, it represented the strongest move yet by Beijing to withdraw stimulus that helped the economy weather the global slump but threatened to fuel inflation.[6]

China's central bank announced in late November of 2009 that it would establish a new "independent" clearinghouse to settle trades of financial products between the country's banks, the Wall Street Journal reported, allowing Chinese banks to trade forex and interest rate products with each other.[7]A previous attempt in 2006 to establish a similar system using the CME Group's Globex trading platform fell apart because the it would have brought the PBC under the review of U.S. regulator the Commodity Futures Trading Commission. China Foreign Exchange Trade System & National Interbank Funding Center (CFETS) began centrally clearing over-the-counter (OTC) spot trades in the interbank market in mid-2009.

References

  1. History. People's Bank of China.
  2. China's Financial Reforms in the Global Market. Questia.
  3. Company Overview of the People's Bank of China. Bloomberg.
  4. People’s Bank of China Cuts Interest Rates. The Wall Street Journal.
  5. Europe and China lower rates in an urgent effort to spur recovery. The Washintgon Post.
  6. China Raises Interest Rates. WSJ.com.
  7. China’s New Clearinghouse Could Be The Missing Link. Wall Street Journal.