Roles of the People’s Bank of China

1. Drafting and enforcing relevant laws, rules and regulations that are related to fulfilling its functions 2. Formulating and implementing monetary policy in accordance with law Issuing the Renminbi and administering its circulation 3. Regulating financial markets, including the inter-bank lending market, the inter-bank bond market, foreign exchange market and gold market 4. Preventing and mitigating systemic financial risks to safeguard financial stability 5. Maintaining the Renminbi exchange rate at adaptive and equilibrium level 6. Holding and managing the state foreign exchange and gold reserves 7.

Managing the State treasury as fiscal agent 8. Making payment and settlement rules in collaboration with relevant departments and ensuring normal operation of the payment and settlement systems 9. Providing guidance to anti-money laundering work in the financial sector and monitoring money-laundering related suspicious fund movement 10. 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 11. Administering credit reporting industry in China and promoting the building up of credit information system 12.

Participating in international financial activities at the capacity of the central bank 13. Engaging in financial business operations in line with relevant rules 14. Performing other functions prescribed by the State Council. China’s Currency Manipulation After China allows the Yuan to float more freely, it has adopted a “managed float” policy. The Bank of China was able to manipulate its currency by buying dollars to keep the dollar price high. China has been interested in keeping the Yuan undervalued relative to the US Dollar, and the easiest way to keep the Dollar price high, and the Yuan low is to buy dollars from the open market.

A country like China, which runs a huge Trade Surplus, can afford to buy dollars in the open market to keep the demand for dollars high, and push the dollar price upwards relative to the Yuan. This keeps the Yuan undervalued. The central bank of the government first determines a set price of its local currency against a major world currency. The central bank then buys and sells its local currency in order to maintain the exchange rate. There are several reasons why China wish to keep its currency undervalue.

First, a weaker exchange rate makes exports more competitive and increases demand for Chinese exports. Second, Chinese economic growth is dependent on exports, so the value of the currency plays a key role in boosting growth. Finally, China needs high growth. China’s economic growth is remarkable high by global standards. But, because of the switch from a state controlled industry to free market economy, there is still a problem of unemployment. Growth in exporting manufacturing industries plays a key role in creating jobs that are being lost in agriculture and other privatized state owned industries.