2015/7/8 Fudan International Media news Summer session 2015 .http://www.china.org.cn/business/2015- Chinese financial markets 06/28/content 35926375htm tp:www.chinadailvasia.com/business/2013- Part 1: Central Bank and pboc http://www.chinatopix.com/articles/53876/20150616/ .http:/money.cnn.com/2015/06/04/newsleconomvfim July 6 .July 31 udan University, Shanghai, China .http://www.bbc.com/news/business-27717594 Monetary Authority Monetary Policy Monetary authority"is a generic term in finance The actions of a central bank, currency board or nd economics for the entity which controls the other regulatory committee that determine the size money supply of a given currency, and has the right and rate of growth of the money supply, which in set interest rates, and other parameters which turn affects interest rates and economic activities control the cost and availability of money. uthority is a central bank Monetary easing means reducing the cost of money the Federal Reserve: Peoples Bank of China; Bank of or increasing the supply of money to stimulate the conomy when it's in recession; Other arrangements: ECB; HK Monetary Authority monetary tightening means the contrary conductions when the economy is overheating. issue notes or coin Instruments of Monetary Policy Reserve Requirements In general, central banks adjusts the money upply by increasing or decreasing the amount of money that commercial banks can lend to The amount of money that banks are required to he business sector keep on deposit at the central bank for the liquidity purpose Reserve Requirements Usually measured in the percentage of a banks Open Market Operatio total deposit i e, deposit reserve ratio Open Market Repurchase Agreements ising or cutting) RRR means the total money that be lent(from the commercial banks) to the
2015/7/8 1 Fudan International Summer Session 2015 Chinese Financial Markets Part 1: Central Bank and PBoC By Zhang Xiaorong July 6th - July 31st Fudan University, Shanghai, China 1-1 Media News • http://www.china.org.cn/business/2015- 06/28/content_35926375.htm • http://www.chinadailyasia.com/business/2013- 07/31/content_15080789.html • http://www.chinatopix.com/articles/53876/20150616/ chinese-authorities-change-7-members-central-banksmonetary-policy-committee.htm • http://money.cnn.com/2015/06/04/news/economy/im f-federal-reserve-rate-hike-2016/index.html • http://www.bbc.com/news/business-27717594 Monetary Authority • “Monetary authority” is a generic term in finance and economics for the entity which controls the money supply of a given currency, and has the right to set interest rates, and other parameters which control the cost and availability of money. • Generally, a monetary authority is a central bank: the Federal Reserve; People’s Bank of China; Bank of Japan • Other arrangements: ECB; HK Monetary Authority; Free banking where a broad range of entities can issue notes or coin. 1-3 Monetary Policy • The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates and economic activities. • Monetary easing means reducing the cost of money or increasing the supply of money to stimulate the economy when it’s in recession; • monetary tightening means the contrary conductions when the economy is overheating. 1-4 Instruments of Monetary Policy • In general, central banks adjusts the money supply by increasing or decreasing the amount of money that commercial banks can lend to the business sector. • Reserve Requirements • Open Market Operations • Open Market Repurchase Agreements • Discount Rate 1-5 Reserve Requirements • Required reserve – The amount of money that banks are required to keep on deposit at the central bank for the liquidity purpose – Usually measured in the percentage of a bank’s total deposit, i.e., deposit reserve ratio – Raising (or cutting) RRR means the total money that be lent (from the commercial banks) to the business sector is reduced (or enlarged). 1-6
2015/7/8 Reserve Requirements Open Market Operations Excess reserve The buying and selling of government securities The amount of cash in hand or deposit in the in the open market in order to expand or contract central bank that is in excess to the required he amount of money in the banking system. eserve The central bank reduces money supply by selling Deposit reserve rate bonds ry dealers(security firms and banks)and decreasing the balance The interest rate that the central bank pays on the that banks can lend equired reserve and the excess reserve Purchase of government securities injects money Open Market Operations Open Market Repurchase Agreements Repurchase Agreement( Repo Reverse Repurchase Agreement An agreement with a commitment by the seller The central bank sells securities to dealers and (dealer) of security to buy it back from the agrees to repurchase them at a higher price purchaser at a specified higher price at a designated future date It contracts the short-term liquidity in the banking ector before the central bank buys back the here the security serves the collateral In the repurchase transaction the central bank What is the difference between Repo and provides short-term liquidity to the banking open market operation? The wording in China is different. Discount Rate Discount Rate The US Fed Discount rate Proceeds from discount loans are also the interest rate charged to co reserves and increase the bank's capacity other depository institutions o from their regional Federal Reserve Bank's lending facility-the discount window, i.e An increase in the discount rate discourages capital financed by the central bank banks from borrowing from the Fed, thereby the total amounts of loans provided to firm extension and seasonal credit extension to a decrease in the discount rate encourages banks to borrow from the fed
2015/7/8 2 Reserve Requirements • Excess reserve – The amount of cash in hand or deposit in the central bank that is in excess to the required reserve • Deposit reserve rate – The interest rate that the central bank pays on the required reserve and the excess reserve 1-7 Open Market Operations • The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. • The central bank reduces money supply by selling bonds to primary dealers (security firms and commercial banks) and decreasing the balance that banks can lend. • Purchase of government securities injects money into the banking system and stimulates growth. 1-8 Open Market Operations • Repurchase Agreement (Repo) – An agreement with a commitment by the seller (dealer) of security to buy it back from the purchaser at a specified higher price at a designated future date. – It represents a collateralized short-term loan where the security serves the collateral. – In the repurchase transaction, the central bank provides short-term liquidity to the banking sector. 1-9 Open Market Repurchase Agreements • Reverse Repurchase Agreement – The central bank sells securities to dealers and agrees to repurchase them at a higher price – It contracts the short-term liquidity in the banking sector before the central bank buys back the security. • What is the difference between Repo and open market operation? • The wording in China is different. 1-10 Discount Rate • The US Fed Discount rate – the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window, i.e., the cost of capital financed by the central bank. – Discount windows provides very short-term (overnight) loan extension, short-term loan extension and seasonal credit extension to commercial banks. 1-11 Discount Rate • Proceeds from discount loans are also reserves and increase the bank’s capacity in making loans. • An increase in the discount rate discourages banks from borrowing from the Fed, thereby the total amounts of loans provided to firms. • A decrease in the discount rate encourages banks to borrow from the Fed. 1-12
2015/7/8 Monetary Policy Monetary Aggregates Monetary policy aims to controlling the total money in the economy. Required Reserve Ratio e more investment activities in the real economy, and Reverse R the higher the growth, and the pressure for How do we calculate the total amount of Monetary Aggregates Monetary Aggregates Monetary Base ·Mo base money, high-powered money includes cash or assets that could quickly be converted into currency Defined as the total currency circulating in the public and the total reserve of the M1(narrow money supply) The sum of currency held by the public and banking system The central bank uses monetary policy to djust the amount of reserve of commercial and loan associations, savings banks, and credit union banks, i.e. the money supply Monetary Aggregates The Us M1 and M2 U. s Moncy Supply (IAl and M) M2 M2 comprises M1, savings(including money market deposit accounts), small-denomination time deposits(time deposits, including retail repurchase agreements, in amounts of less than 100 000 dollars), and balances in retail money arket mutual funds Economists usually use"broad money to describe the monetary aggregate M2 is the commonly used measure of broad money
2015/7/8 3 Monetary Policy Easing Tightening Required Reserve Ratio ß Ý Open Market Operation Repo Reverse Repo Discount Rate ß Ý 1-13 Monetary Aggregates • Monetary policy aims to controlling the total money in the economy. • Intuitively, the more money issued, the more investment activities in the real economy, and the higher the growth, and the pressure for inflation. • How do we calculate the total amount of money in the economy? 1-14 Monetary Aggregates • Monetary Base – base money, high-powered money –Defined as the total currency circulating in the public and the total reserve of the banking system – The central bank uses monetary policy to adjust the amount of reserve of commercial banks, i.e., the money supply 1-15 Monetary Aggregates • M0 – includes cash or assets that could quickly be converted into currency • M1 (narrow money supply) – The sum of currency held by the public and transaction deposits (demand deposits) at depository institutions (commercial banks, savings and loan associations, savings banks, and credit unions) 1-16 Monetary Aggregates • M2 – M2 comprises M1, savings (including money market deposit accounts), small-denomination time deposits (time deposits, including retail repurchase agreements, in amounts of less than 100 000 dollars), and balances in retail money market mutual funds. • Economists usually use “broad money” to describe the monetary aggregate • M2 is the commonly used measure of broad money. 1-17 The US M1 and M2 1-18
2015/7/8 Annual Growth of us China Monetary Aggregates(M2) Monetary Aggregates and GDP (in trillion RMB) 甲中∮中少少心 China M2/GDP Broad Money as of GDP 2478 25121409 1996199820002002200420062008201020122014 Source: World Bank History of PBoc History of PBoC 1948-1952: establishment of pboc and the national 1948-1952: establishment of pboc and the national People's Bank of China was established in Declst, PBoC moved to Beiping(now Beijing )in Feb 1949 1948 in Shijiazhuang based on an consolidation of the huabei Bank, the beihai Bank and the xibei supervised by the State Council mer Bank in northern China Peoples Republic of China was established in Oct1, First set of rmb was issued and became the fiat money in northern China PBoC's major functions included money supply, financial markets and supporting economy reconstruction after civil war
2015/7/8 4 Annual Growth of US Monetary Aggregates 1-19 China Monetary Aggregates (M2) and GDP (in trillion RMB) 1-20 0 20 40 60 80 100 120 140 China GDP China M2 21 China M2/GDP 0.82 0.89 0.94 0.99 0.97 1.00 1.07 1.15 1.24 1.34 1.36 1.44 1.54 1.63 1.59 1.62 1.60 1.52 1.51 1.78 1.81 1.80 1.88 1.95 1.93 0.80 1.00 1.20 1.40 1.60 1.80 2.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Broad Money as % of GDP China USA Japan UK Korea 2005 152.2 71.9 206.6 122.5 111.1 2006 158.8 74.1 204 132.1 119 2007 150.5 79.2 202.8 145 122.1 2008 150 84.3 209.1 166.6 129.1 2009 176.6 90.4 227 170.6 136 2010 177.5 84.7 226.1 168.7 131.2 2011 175.9 87.2 238 155.3 131.4 2012 182.4 87.8 241.3 153 133.3 2013 188.2 88.4 247.8 150.9 134.4 2014 193 89.5 251.2 140.9 139.9 Source: World Bank History of PBoC • 1948-1952: establishment of PBoC and the national banking system – People’s Bank of China was established in Dec.1st, 1948 in Shijiazhuang based on an consolidation of the Huabei Bank, the Beihai Bank and the Xibei Farmer Bank in northern China – First set of RMB was issued and became the fiat money in northern China – In southern part of China, Chiang Kai-shek's national currency was still circulating freely. 1-23 History of PBoC • 1948-1952: establishment of PBoC and the national banking system – PBoC moved to Beiping (now Beijing) in Feb.1949 – From Sept. 1949, PBoC became directly supervised by the State Council – People’s Republic of China was established in Oct1, 1949 – PBoC’s major functions included money supply, treasury management, stabilizing national financial markets and supporting economy reconstruction after civil war 1-24
2015/7/8 History of PBoc History of PBoc 1948-1952: the establishment of PBoc and the 1953-1978: national bank in the planned economy private banking industry almost disappeared Most private banks went bankruptcy due to the PBoC served the national institution that governed financial regulations by PBoC the whole financial sector and took the banking PBoC helped transforming private-owned banks to business oint-owned ones PBoC controlled both the sourcing and reign banks' business was halted; foreign lanned economy ohibited circulating in China Others were transformed to joint-owned(private adjusting the money circulation by providing all and government) banks sources of credits to state-owned firms, joint- History of PBoc History of PBoc 1979-1992: transition from a national bank to the 1979-1992: transition from a national bank to the central bank In 1978, China began to adopt the reform and PBoc took the status of central bank from Jan 1st, Focused on setting and implementing monetary banks, trusts, insurance companies)came forth, a policy, controlling the total amount of credit and central bank was necessary for the regulation In Sept. 1983, State Council decided to have the ending and depository business was transferred PBoC function as a central bank with the o Industrial and Commercial Bank of china separation of ICBC The required reserve and rediscount rate system lending to specialized banks)was set up History of PBoc History of PBoC 1993-present: reinforce and complete the role of central bank Commercial I and policy banking gradually CSRC and CIRC established in 1992 and 1998 striped since 1993 ecurity and insurance regulatory function of The Law of the People's Republic of China on the PBoC striped People's Bank of China passed by the third The draft amendment of Law on the people's Bank Plenum of the eighth National People s Congress of China passed on Dec 22, 2003 on March 18, 1995, legally confirmed the PBoc's CBRC established in 2004 to supervise the
2015/7/8 5 1-25 History of PBoC • 1948-1952: the establishment of PBoC and the national banking system – Most private banks went bankruptcy due to the financial regulations by PBoC – PBoC helped transforming private-owned banks to joint-owned ones – Foreign banks’ business was halted; foreign currencies were prohibited circulating in China – Others were transformed to joint-owned (private and government) banks History of PBoC • 1953-1978: national bank in the planned economy – private banking industry almost disappeared – PBoC served the national institution that governed the whole financial sector and took the banking business – PBoC controlled both the sourcing and employment of capitals in the planned economy – PBoC took the responsibility of organizing and adjusting the money circulation by providing all sources of credits to state-owned firms, jointowned firms and even individuals. 1-26 History of PBoC • 1979-1992: transition from a national bank to the central bank – In 1978, China began to adopt the reform and opening-door policy – Various forms of financial institution (commercial banks, trusts, insurance companies) came forth, a central bank was necessary for the regulation – In Sept. 1983, State Council decided to have the PBoC function as a central bank with the separation of ICBC 1-27 History of PBoC • 1979-1992: transition from a national bank to the central bank – PBoC took the status of central bank from Jan 1st, 1984 – Focused on setting and implementing monetary policy, controlling the total amount of credit and stabilizing commodity prices – Lending and depository business was transferred to Industrial and Commercial Bank of China – The required reserve and rediscount rate system (lending to specialized banks) was set up 1-28 History of PBoC • 1993-present: reinforce and complete the role of central bank – Commercial banking and policy banking gradually striped since 1993 – 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 on March 18, 1995 , legally confirmed the PBoC's central bank status 1-29 History of PBoC • 1993-present: reinforce and complete the role of central bank – CSRC and CIRC established in 1992 and 1998, security and insurance regulatory function of PBoC striped; – The draft amendment of Law on the People‘s Bank of China passed on Dec 22, 2003 – CBRC established in 2004 to supervise the financial industry 1-30
2015/7/8 Functions of pboc PBoC's Required Reserve Ratio (1984-2003 11984 Village Deposit 25% Resident Deposit 40 21985--1986 31987--5ept1988 nder the guidance of the State Council, the pe prevents and resolves financial risks, and safeguards 6Nov1999—-sept2003 PBoC's Required Reserve Ratio One-year Deposit Rate (20032015) (1990-2013) One-year Deposit Rate (2003-2015) Quarterly GDP Growth(2008" 2014)
2015/7/8 6 1-31 Functions of PBoC • Under the guidance of the State Council, the PBoC formulates and implements monetary policy, prevents and resolves financial risks, and safeguards financial stability. PBoC’s Required Reserve Ratio (1984-2003) Year Required Reserve Ratio 1 1984 Corporate Deposit 20% Village Deposit 25% Resident Deposit 40 2 1985——1986 10% 3 1987——Sept 1988 12% 4 Sept 1988——Mar 1998 13% 5 Mar 1998——Nov 1999 8% 6 Nov1999——Sept 2003 6% 1-32 1-33 PBoC’s Required Reserve Ratio (2003-2015) 6% 8% 10% 12% 14% 16% 18% 20% 22% 1-34 One-year Deposit Rate (1990-2013) 1% 3% 5% 7% 9% 11% 1990/1/1 1991/1/1 1992/1/1 1993/1/1 1994/1/1 1995/1/1 1996/1/1 1997/1/1 1998/1/1 1999/1/1 2000/1/1 2001/1/1 2002/1/1 2003/1/1 2004/1/1 2005/1/1 2006/1/1 2007/1/1 2008/1/1 2009/1/1 2010/1/1 2011/1/1 2012/1/1 2013/1/1 1-35 One-year Deposit Rate (2003-2015) 1.75% 2.25% 2.75% 3.25% 3.75% 4.25% 1-year Deposit Rate Quarterly GDP Growth (2008~2014) 36 11.30% 11.00% 10.60% 9.60% 6.60% 7.50% 8.20% 9.20% 12.10% 11.20% 10.70% 10.40% 9.70%9.60% 9.40% 9.20% 8.10% 7.60% 7.40% 7.90% 7.70% 7.50% 7.80%7.70% 7.40%7.50% 7..30% 6% 7% 8% 9% 10% 11% 12% 13% 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4
2015/7/8 Monthly Inflation PBoCs (2008~2014) Open Market Operations PBoC's RMB OMO started from 1998 banks)have been chosen to be the primary dealers hat can trade large volume of treasury bonds with OMO instrument ket trading Issuance of central bank bills PBoC's OMO Instruments Example of PBoCc's Reverse Repo po (and Reverse repo) (June 29, 2015)China PBoC injects Again Via Reverse Repo Despite RRR Cut another CNY50 billion via 7-day reverse repos into Secondary market trading the interbank m PBoc buys or sells bonds in the secondary market to release or get back liquidity operations on tuesday. Issuance of central bank bills The injection came as a surprise as the PBoc has PBoC issues bills to get back liquidity and releases already cut the deposit reserve ratio to selected liquidity when bills are due eady moved lower. Example of PBoC's Reverse Repo Example of PBoc Cutting RRR and Interest Rate The injection came as a surprise as the pboc has (une 28, 2015)China cuts reserve ratio, interest already cut the deposit reserve ratio to selected rates to bolster growth banks over the weekend and money rates have China s central bank cut both the requirement reserve ratio(RRR), the amount of reserves banks The seven day repo opened at 2. 58% on tuesday required to hold and benchmark interest rates on compared with Monday s average of 2. 6935% and Saturday. The credit-easing move to be effective on Sunday Traders believe the injection is partly to give stock ims to"support the real economy and promote investors more confidence and to reaffirm the restructuring, said the People's Bank of China PBoC s easing stance remains unchanged (PBOC) in an announcement
2015/7/8 7 Monthly Inflation (2008~2014) 37 PBoC’s Open Market Operations • PBoC’s RMB OMO started from 1998. • In 2012, 50 financial institutions (mainly commercial banks) have been chosen to be the primary dealers that can trade large volume of treasury bonds with PBoC. • OMO instruments – Repo – Reverse repo – Secondary market trading – Issuance of central bank bills 1-38 PBoC’s OMO Instruments • Repo (and Reverse repo) – PBoC sells bonds (and takes back liquidity) and buys them back (and releases liquidity) in the future (28 days or more) • Secondary market trading – PBoC buys or sells bonds in the secondary market to release or get back liquidity • Issuance of central bank bills – PBoC issues bills to get back liquidity and releases liquidity when bills are due. 1-39 Example of PBoC’s Reverse Repo • (June 29, 2015) China PBOC Injects Again Via Reverse Repo Despite RRR Cut – The People's Bank of China unexpectedly injected another CNY50 billion via 7-day reverse repos into the interbank market via its open market operations on Tuesday. – The injection came as a surprise as the PBoC has already cut the deposit reserve ratio to selected banks over the weekend and money rates have already moved lower. 1-40 Example of PBoC’s Reverse Repo – The injection came as a surprise as the PBoC has already cut the deposit reserve ratio to selected banks over the weekend and money rates have already moved lower. – The seven day repo opened at 2.58% on Tuesday, compared with Monday's average of 2.6935% and last Friday's 2.9292%. – Traders believe the injection is partly to give stock investors more confidence and to reaffirm the PBoC's easing stance remains unchanged. 1-41 Example of PBoC’ Cutting RRR and Interest Rate • (June 28, 2015) China cuts reserve ratio, interest rates to bolster growth – China's central bank cut both the requirement reserve ratio (RRR), the amount of reserves banks required to hold, and benchmark interest rates on Saturday. – The credit-easing move, to be effective on Sunday, aims to "support the real economy and promote restructuring," said the People's Bank of China (PBOC) in an announcement. 1-42
2015/7/8 Example of PBoc Cutting RRR and Example of PBoc Cutting RRR and Interest Rate Interest Rate Interest rates for one-year lending businesses by 50 basis points(bps) are cut by 25 bps to 4.85 percent and 2 percent The RRR for finance companies, or non-bank nancial institutions, will be lowered by 300 bps ending of other terms and kinds will also be the pBoc announced owered by the same margin, the announcement rpose of the rrr reduction is to boost ial institutes'abilities to support farmers It is the third rrr reduction in nearly five months nd agricultural development as well as small nd the fourth round of interest cuts in nearly icro businesses. the pBoc said. China s economic growth fell in the first quarter to 7 percent, its lowest level in six years. PBoC's Balance sheet Governor of Pboc .nillion Yan200200330042005200520072003820092010201201220132014 1985: Ph. D from Tsinghu 黑是是是是 1991-1995: Deputy director of 100106094078055079084720951021.67131 a7万1312424114141m40游a 1996-1998: Deputy Administrator a760991016311407108007807506811007811 1998-2000: Director of ccB 18734103512841689206922733591208243到1339 2000-2002: Chair of Csrc asa71a2171702124272082 001-present: Governor of PBoc Chair of China Monetary Policy Governor and Professor, Committee Net Financial As POcS POcS Monetary Policy Committee Monetary Policy Committee lished in 1997, the MPC is The Monetary Policy Committee performs its functions through its regular quarterly g since djustment of monetary policy and policy targets, An ad hoc meeting may be held if it is proposed by plication of monetary policy instrument, major d by more than one-third of he members of the Monetary policy Committee. The opinions expressed in the meeting of the policies The committee plays advisory role on the basis of Monetary Policy Committee will be recorded in the omprehensive research on macroeconomic situations and the macro targets set by the 8
2015/7/8 8 Example of PBoC’ Cutting RRR and Interest Rate – The central bank cut the RRR for commercial banks serving rural areas, agriculture and small businesses by 50 basis points (bps). – The RRR for finance companies, or non-bank financial institutions, will be lowered by 300 bps, the PBOC announced. – The purpose of the RRR reduction is to boost financial institutes' abilities to support farmers, rural and agricultural development as well as small and micro businesses, the PBOC said. 1-43 Example of PBoC’ Cutting RRR and Interest Rate – Benchmark interest rates have also been cut. Interest rates for one-year lending and deposits are cut by 25 bps to 4.85 percent and 2 percent respectively. – Lending of other terms and kinds will also be lowered by the same margin, the announcement said. – It is the third RRR reduction in nearly five months, and the fourth round of interest cuts in nearly seven months. – China's economic growth fell in the first quarter to 7 percent, its lowest level in six years. 1-44 PBoC’s Balance Sheet in trillion Yuan 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* Total Assets 5.11 6.20 7.87 10.37 12.86 16.91 20.71 22.75 25.93 28.10 29.45 31.73 33.93 Foreign Assets 2.32 3.11 4.70 6.33 8.58 12.48 16.25 18.53 21.54 23.79 24.14 27.22 28.00 Treasury Bonds 0.29 0.29 0.30 0.29 0.29 1.63 1.62 1.57 1.54 1.54 1.53 1.53 1.53 Credit to Commercial Banks 1.00 1.06 0.94 0.78 0.65 0.79 0.84 0.72 0.95 1.02 1.67 1.31 2.41 Credit to Other Financial Institutions 0.74 0.75 0.90 1.33 2.20 1.30 1.19 1.16 1.14 1.07 1.00 0.89 0.87 others 0.76 0.99 1.03 1.63 1.14 0.71 0.80 0.78 0.76 0.68 1.10 0.78 1.12 Liabilities 5.09 6.18 7.84 10.35 12.84 16.89 20.69 22.73 25.91 28.08 29.43 31.71 33.91 Monetary Base 4.51 5.28 5.89 6.43 7.78 10.15 12.92 14.40 18.53 22.46 25.23 27.10 28.11 Central Bank Bills 0.15 0.30 1.11 2.03 2.97 3.45 4.58 4.21 4.05 2.33 1.39 0.78 0.65 Central Government Deposit 0.31 0.50 0.58 0.75 1.02 1.71 1.70 2.12 2.43 2.27 2.08 2.86 4.45 Foreign Liabilities 0.04 0.05 0.06 0.06 0.09 0.09 0.07 0.08 0.07 0.27 0.15 0.28 0.16 Others 0.08 0.05 0.21 1.06 0.97 1.48 1.42 1.93 0.82 0.75 0.58 0.69 0.54 Net Financial Assets 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 45 *: by the end of Oct in 2014 Governor of PBoC • 1985: Ph.D from Tsinghua Univ. • 1991-1995: Deputy director of Bank of China • 1996-1998: Deputy Administrator of SAFE • 1998-2000: Director of CCB • 2000-2002: Chair of CSRC • 2001-present: Governor of PBoC, Chair of China Monetary Policy Committee 1-46 Governor and Professor, Zhou Xiaochuan PBoC’s Monetary Policy Committee • Established in 1997, the MPC is a consultative body for monetary policy making by the PBoC • Its responsibility is to advise on the formulation and adjustment of monetary policy and policy targets, application of monetary policy instrument, major monetary policy measures and the coordination between monetary policy and other macroeconomic policies. • The committee plays advisory role on the basis of comprehensive research on macroeconomic situations and the macro targets set by the government. 1-47 PBoC’s Monetary Policy Committee • The Monetary Policy Committee performs its functions through its regular quarterly meeting since 1997. • An ad hoc meeting may be held if it is proposed by the Chairman or endorsed by more than one-third of the members of the Monetary Policy Committee. • The opinions expressed in the meeting of the Monetary Policy Committee will be recorded in the form of "meeting minutes". 1-48
2015/7/8 POcS PBoCs Monetary Policy Committee Monetary Policy Com Such minutes or any resulted policy advice, if opproved by more than two-thirds of the members the pboC's Governor of the monetary Policy Committee should be attached as an annex to the proposed decisions of a Deputy Secretary-General of the State Council the pboc on annual money supply, interest rates exchange rates or other important monetary policy issues to be reported to the State Council fe of the saFe. the chairman of cbrc. the the Commissioner of National Bureau of statistics the President of the china association of banks 3 experts from the academia PBoC POcS Monetary Policy Committee Monetary Policy Committee June 16, 2015)Chinese authorities change 7 PBOC announced that four government officials members of central banks monetary policy committee The State Council has on Minister, Shi Yaobin; the leader of China Banking Association, Tian Guoli; and deputy governor change to the composition of the monetary policy committee of the People s Bank of China(PBoc the people's Bank of China, Zhang Xiaohui-have The change sees seven members to be appointed eplace the former National De to replace seven others. eform Commission deputy leader, Zhu Zhixin; the former leader of the National Bureau of statistics Ma Jiantang; the former vice governor of the Peoples Bank of China, Hu Xiaolian; and the hea of China Development Bank, Hu Huaibang POcS Monetary Policy Committee Summary PBoC is the central bank in Ch professors have also been appointed to replace three economists as advisers to the monetary It used to be the mono-bank in China, and its ro changes with the economic reform. Chongen, Fan Gang and Huang Yiping PBoc takes the respons chosen to replace Song Guoqing, Qian Yingyi and pply with trad Chen yulu including RRR, interest rate and OMO The role of the committee which meets quarterly proved by the State Council, which implies the lack formulating and changing its monetary policies f central bank independence tly unclear why the state council decided to replace some officials in the 15- member monetary policy committee
2015/7/8 9 PBoC’s Monetary Policy Committee • Such minutes or any resulted policy advice, if approved by more than two-thirds of the members of the Monetary Policy Committee, should be attached as an annex to the proposed decisions of the PBoC on annual money supply, interest rates, exchange rates or other important monetary policy issues to be reported to the State Council for approval. 1-49 PBoC’s Monetary Policy Committee • The MPC is composed of – the PBoC's Governor – two Deputy Governors – a Deputy Secretary-General of the State Council – a Vice Minister of the SDRC – a Vice Finance Minister – the Administrator of the SAFE, the Chairman of CBRC, the Chairman of CSRC, the Chairman of CIRC – the Commissioner of National Bureau of Statistics – the President of the China Association of Banks – 3 experts from the academia 1-50 PBoC’s Monetary Policy Committee • (June 16, 2015) Chinese authorities change 7 members of central bank’s monetary policy committee – The State Council has on Monday announced a change to the composition of the monetary policy committee of the People's Bank of China (PBOC). The change sees seven members to be appointed to replace seven others. PBoC’s Monetary Policy Committee – PBOC announced that four government officials - National Development and Reform Commission deputy leader, Lian Weiliang; deputy Finance Minister, Shi Yaobin; the leader of China Banking Association, Tian Guoli; and deputy governor at the People's Bank of China, Zhang Xiaohui - have been chosen – to replace the former National Development and Reform Commission deputy leader, Zhu Zhixin; the former leader of the National Bureau of Statistics, Ma Jiantang; the former vice governor of the People's Bank of China, Hu Xiaolian; and the head of China Development Bank, Hu Huaibang. 1-52 PBoC’s Monetary Policy Committee – Additionally, three high ranking economic professors have also been appointed to replace three economists as advisers to the monetary policy committee. The PBOC announced that Bai Chongen, Fan Gang and Huang Yiping have been chosen to replace Song Guoqing, Qian Yingyi and Chen Yulu. – The role of the committee, which meets quarterly, is to advice the People's Bank of China on formulating and changing its monetary policies. – It is currently unclear why the state council decided to replace some officials in the 15- member monetary policy committee. 1-53 Summary • PBoC is the central bank in China. • It used to be the mono-bank in China, and its role changes with the economic reform. • PBoC takes the responsibility of controlling RMB money supply with traditional monetary policy tools, including RRR, interest rate and OMO. • Money policy adjustments in China should be approved by the State Council, which implies the lack of central bank independence. 1-54
2015/7/8 Fudan International Media news Summer session 2015 .http://www.china.org.cn/business/2015- Chinese financial markets 06/28/content 35926375htm tp:www.chinadailvasia.com/business/2013- Part 1: Central Bank and pboc http://www.chinatopix.com/articles/53876/20150616/ .http:/money.cnn.com/2015/06/04/newsleconomvfim July 6 .July 31 udan University, Shanghai, China .http://www.bbc.com/news/business-27717594 Monetary Authority Monetary Policy Monetary authority"is a generic term in finance The actions of a central bank, currency board or nd economics for the entity which controls the other regulatory committee that determine the size money supply of a given currency, and has the right and rate of growth of the money supply, which in set interest rates, and other parameters which turn affects interest rates and economic activities control the cost and availability of money. uthority is a central bank Monetary easing means reducing the cost of money the Federal Reserve: Peoples Bank of China; Bank of or increasing the supply of money to stimulate the conomy when it's in recession; Other arrangements: ECB; HK Monetary Authority monetary tightening means the contrary conductions when the economy is overheating. issue notes or coin Instruments of Monetary Policy Reserve Requirements In general, central banks adjusts the money upply by increasing or decreasing the amount of money that commercial banks can lend to The amount of money that banks are required to he business sector keep on deposit at the central bank for the liquidity purpose Reserve Requirements Usually measured in the percentage of a banks Open Market Operatio total deposit i e, deposit reserve ratio Open Market Repurchase Agreements ising or cutting) RRR means the total money that be lent(from the commercial banks) to the
2015/7/8 1 Fudan International Summer Session 2015 Chinese Financial Markets Part 1: Central Bank and PBoC By Zhang Xiaorong July 6th - July 31st Fudan University, Shanghai, China 1-1 Media News • http://www.china.org.cn/business/2015- 06/28/content_35926375.htm • http://www.chinadailyasia.com/business/2013- 07/31/content_15080789.html • http://www.chinatopix.com/articles/53876/20150616/ chinese-authorities-change-7-members-central-banksmonetary-policy-committee.htm • http://money.cnn.com/2015/06/04/news/economy/im f-federal-reserve-rate-hike-2016/index.html • http://www.bbc.com/news/business-27717594 Monetary Authority • “Monetary authority” is a generic term in finance and economics for the entity which controls the money supply of a given currency, and has the right to set interest rates, and other parameters which control the cost and availability of money. • Generally, a monetary authority is a central bank: the Federal Reserve; People’s Bank of China; Bank of Japan • Other arrangements: ECB; HK Monetary Authority; Free banking where a broad range of entities can issue notes or coin. 1-3 Monetary Policy • The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates and economic activities. • Monetary easing means reducing the cost of money or increasing the supply of money to stimulate the economy when it’s in recession; • monetary tightening means the contrary conductions when the economy is overheating. 1-4 Instruments of Monetary Policy • In general, central banks adjusts the money supply by increasing or decreasing the amount of money that commercial banks can lend to the business sector. • Reserve Requirements • Open Market Operations • Open Market Repurchase Agreements • Discount Rate 1-5 Reserve Requirements • Required reserve – The amount of money that banks are required to keep on deposit at the central bank for the liquidity purpose – Usually measured in the percentage of a bank’s total deposit, i.e., deposit reserve ratio – Raising (or cutting) RRR means the total money that be lent (from the commercial banks) to the business sector is reduced (or enlarged). 1-6