China Central Bank Lifts Daily Yuan Fix Slightly Against USD

Key Moments

PBOC Adjusts Daily USD/CNY Reference Rate

The People’s Bank of China (PBOC) set the central USD/CNY reference rate for the upcoming Tuesday trading session at 6.7905. This compares with the prior day’s fixing level of 6.7873 and a Reuters estimate of 6.7452.

Mandate and Role of the People’s Bank of China

The People’s Bank of China’s primary monetary policy objectives are to safeguard price stability, including exchange rate stability, and to promote economic growth. The central bank is also tasked with advancing financial reforms, including the opening and development of China’s financial markets.

The institution is owned by the state of the People’s Republic of China (PRC) and is not regarded as an autonomous central bank. The Chinese Communist Party (CCP) Committee Secretary, who is nominated by the Chairman of the State Council, plays a key role in guiding the PBOC’s management and strategic direction rather than the governor. However, Mr. Pan Gongsheng currently holds both of these positions.

Policy Toolkit and Benchmark Rates

The PBOC employs a wide array of monetary policy instruments, which differs from the typical frameworks used in many Western economies. Its main tools include the seven-day Reverse Repo Rate, the Medium-term Lending Facility (MLF), foreign exchange market interventions, and the Reserve Requirement Ratio (RRR).

China’s benchmark lending rate is the Loan Prime Rate (LPR). Shifts in the LPR directly affect borrowing costs for loans and mortgages, as well as the interest rates paid on deposits. By adjusting the LPR, the central bank can also influence the exchange rate of the Chinese Renminbi.

Private Banking Landscape in China

China allows privately owned banks to operate within its financial system. There are 19 private banks, which account for a relatively small portion of the overall banking sector. The largest private institutions include digital lenders WeBank and MYbank, which are backed by technology companies Tencent and Ant Group, per The Straits Times.

In 2014, China authorized domestic lenders that are fully funded by private capital to function within the traditionally state-dominated financial sector, expanding the role of private entities in the country’s banking industry.