China Highlights PBOC's Monetary Policy Management by Amending Law

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Last updated at: (Beijing Time) Monday, August 25, 2003

China Highlights PBOC's Monetary Policy Management by Amending Law

Chinese legislators attempted to improve the central bank's performance in monetary policy management while debating the draft amendment of the Law on the People's Bank of China Sunday.

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Chinese legislators attempted to improve the central bank's performance in monetary policy management while debating the draft amendment of the Law on the People's Bank of China Sunday.

"The central bank shall focus more on making monetary polices and watching the monetary market, which distinguishes itself from the newly-founded bank watchdog, the China Banking Regulatory Commission (CBRC)," said Cheng Siwei, vice chairman of the National People's Congress (NPC) Standing Committee.

On Saturday, the People's Bank of China (PBOC), the central bank, decided to tune the rate of required deposit reserves for the seventh time in the past two decades and the first in the past four years.

The rate of required deposit reserves will rise from 6 percent to 7 percent on Sept. 21 in a bid to cool down the overheated growth of loans in the domestic market.

The required deposit reserves, which the PBOC requires commercial banks to put in PBOC special accounts to guarantee clients get back their deposit, is a usual tool for central banks to regulate monetary market.

The PBOC has done a good job of running monetary policies but it should continue improving its independent decision making, said Chen Xingdong, chief economist with BNP Parisbas Peregrine in Shanghai.

"Overseas banks are very much interested in the recent amendment of bank laws in China since a developed frame of financial laws will be crucial to create a mature financial sector," he said.

The present amendment draft still does not place as much importance on the central bank's role in operating monetary policies as it should, Cheng said.

The item on the currency policy committee, a consulting arm under the PBOC, is also obscure and shall be rewritten as clear introduction of its function, he added.

The draft recommends that the currency policy committee play a more important role in steering the country's macro-economy, especially its currency policy.

Economists have a more radical proposal. The currency policy committee should change from a consulting arm to decision-making organ, said Wang Zao, expert with the Development Research Center of the State Council.

The committee would make decisions through voting, he said.

Founded in 1993, the currency policy committee, which examines and gives advice on the country's monetary policies, consists of officials from the central bank, the Ministry of Finance and watchdogs for foreign currency, securities, insurance and banking as well as delegates from banks, enterprises and economists.

Wang suggested more economists join the committee, with officials from major branches of the central bank to introduce local needs and associations that stand for a broader range of opinion.

The amendment draft of the Law on the People's Bank of China was put forward for discussion for the first time at the fourth session of the Tenth NPC Standing Committee held here from Aug. 22to 27.

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