The PBoC has twelve departments and six bureaus. The exchange rate office currently operates under the Monetary Policy Department. Now the PBoC seeks to strip the exchange rate office from the Monetary Policy Department and make it an independent department.
A researcher,under anonymity, at the Chinese Academy of Social Sciences told Chinastakes.com that by making the exchange rate office an independent department, the PBoC may reinforce the influence of exchange rate policy in macroeconomic control in future. The Monetary Policy Department is the most important department at the PBoC. The director of this department will usually be promoted to a higher position in the PBoC.
It has been three years since the launch of exchange rate reforms in July 2005. The establishment of the Exchange Rate Bureau indicates the increasingly important or even key role of exchange rate policy in China’s current monetary policy system.
It may also mean that the Monetary Policy Department is unable to formulate internal and external monetary policies at the same time, and it may be better to transfer the responsibility of making exchange rate policy to the Exchange Rate Bureau, so the Monetary Policy Department can focus on domestic policies such as interest rates, and credit.
At present under the Monetary Policy Department there are offices of exchange rates, interest rates, foreign exchange transactions, open market business, and so on. After the reshuffle, the office of exchange rates and office of foreign exchange transactions will be transferred to the new Exchange Rate Department.
Coordination between the new Exchange Rate Department and the Monetary Policy Department, and the Exchange Rate Department and the State Administration of Foreign Exchange (SAFE), will be very important.
Firstly, there is the coordination between internal and external policies. The core of China’s current monetary policy consists of three parts: interest rate control, credit control, and sterilizing currency inflows. The PBoC’s sterilization operation, which is directly related to foreign exchange inflows, especially calls for perfect coordination between the Exchange Rate Department and the Monetary Policy Department.
Secondly, there is the coordination between the Exchange Rate Department and SAFE. Currently, SAFE is mainly responsible for supervising, cultivating, and developing the foreign exchange market, and the PBoC is in charge of exchange rate issues. This is also the main difference between SAFE and the Exchange Rate Bureau of the PBoC. However, another of SAFE’s responsibilities is to "analyze and predict the changes of supply and demand in the foreign exchange market, and provide the PBoC with suggestions". So in future the cooperation between the two departments will still be very important.
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