People’s Bank of China: a guide to China’s interest rates
Rebecca Cattlin April 28, 2021 6:26 AM
The People’s Bank of China is somewhat of an enigma compared to other central banks. Find out everything you need to know about the PBOC and how its meetings influence financial markets.
What is the central bank of China?
The central bank of China is called the People’s Bank of China or PBOC. It’s the body in charge of setting monetary policy – including setting interest rates – and regulating financial institutions in mainland China.
The PBOC is known as the most financially resourceful bank in the world, but as of 2020, it only has the fourth-largest total asset holding of any central bank, totalling $5.9 trillion in 2020 – the other largest being the ECB ($8.9 trillion), the Fed ($7.6 trillion) and BOJ ($6.6 trillion).
Who is the governor of the PBOC?
The current governor of the People’s Bank of China is Yi Gang, who was the former director of the State Administration of Foreign Exchange.
The PBOC is managed by the governor and a number of deputy governors – all of which are appointed by the National People’s Congress and Premier of the State Council.
What is the PBOC monetary policy committee?
The PBOC monetary policy committee is the body that proposes interest rates and creates policies with the goal of hitting the country’s inflation targets.
However, the monetary policy committee is only really considered an ‘advisor’, as effectively the PBOC needs approval from the State Council before any changes can be implemented. Calls have been made – most recently by ex-committee member Ma Jun – for the MPC to be completely independent to set rates and govern its own interest rate announcement calendar.
We don’t know as much about what happens in PBOC meetings than we do about the Fed or the Bank of England meetings, as fewer details are released.
The committee currently consists of:
- Yi Gang, Governor of the People's Bank of China
- Ding Xuedong, Deputy Secretary General of the State Council
- Lian Weiliang, Vice Chairman of National Development and Reform Commission
- Zou Jiayi, Vice Minister of Ministry of Finance
- Chen Yulu, Deputy Governor of the People’s Bank of China
- Liu Guoqiang, Deputy Governor of the People’s Bank of China
- Ning Jizhe, Commissioner of the National Bureau of Statistics
- Guo Shuqing, Chairman of China Banking and Insurance Regulatory Commission
- Yi Huiman, Chairman of China Securities Regulatory Commission
- Pan Gongsheng, Administrator of the State Administration of Foreign Exchange
- Tian Guoli, Chairman of China Banking Association
- Liu Shijin, Vice President of Development Research Center of the State Council
- Cai Fang, Chief Expert of the Chinese Academy of Social Sciences's National Institute for Global Strategy
- Wang Yiming, Vice President of the China Center for International Economic Exchanges
People’s Bank of China meeting schedule 2022
How do PBOC meetings impact financial markets?
As with any central bank meeting, the setting of interest rates have a direct impact on the price of currencies, shares and bonds. This means that traders will watch the announcements, and any surprises – such as dramatically higher or lower than expected rates.
How the PBOC impacts exchange rates?
The PBOC manages the yuan’s value extremely closely. The yuan is pegged within 2% to a basket of currencies that reflect its relationship with trading partners – the basket is weighted toward the US dollar. China does this to hedge against changes in the dollar’s value, which has a direct impact on the value of the yen.
The peg was modified in 2015 to make the yuan more susceptible to market forces. So, the yuan’s reference rate is now equal to the previous day’s closing price.
China has been accused of deliberately manipulating the yuan’s value, keeping it low in order to make its exports cheaper and more competitive on a global market. However, nothing has ever been proved.
The PBOC holds USD in large quantities in its foreign reserves in the form of US treasuries. When the PBOC buys the dollar, the supply is reduced and the price of the USD rises, and vice versa when it sells it. So, if the US dollar rises too far above the peg, the PBOC has been known to sell US treasuries in order to drive down the dollar’s price.
Following the change, the yuan’s value was able to fall from over 6.1 yuan per dollar to 6.4 yuan per dollar; in order to stabilise its price, the PBOC used its dollar reserves to buy back yuan from Chinese banks to raise its value and depress the USD.
The competitive relationship between the Chinese and US economies means that whenever there’s a slowdown in China’s economic growth, or a stock market decline, the US dollar gains in strength. And whenever the US declines, Chinese markets tend to receive a boost.
History of the PBOC
The PBOC was established on December 1, 1948 when the Huabei Bank, Beihai Bank and Xibei Farmer Bank combined. It was initially the only bank in the Republic of China, controlling central and commercial operations.
Any other mainland bank was a division of the PBOC, giving the PBOC complete control over private banks.
Then, in 1978, as part of a series of economic reforms, the State Council split the commercial banking arm of the PBOC off into four independent (but still state owned) banks:
- The Industrial and Commercial Bank of China (ICBC)
- The Bank of China (BOC)
- The Agricultural Bank of China (ABC)
- The China Construction Bank (CCB)
It wasn’t until 1983 that the PBOC was formally recognised as the central bank of China.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.