Legal Changes Expand Power of Chinese Central Bank, Confer Official Recognition to Digital Renminbi

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Proposed amendments to the law governing the Chinese central bank are expected to confer it with greater sway and authority within China’s financial regulatory system, while also providing a legal basis for the digital renminbi as a form of statutory currency.

The People’s Bank of China (PBOC), being China’s central bank, recently issued the draft version of the “People’s Republic of China People’s Bank of China Law” (中华人民共和国中国人民银行法) for the solicitation of opinions from the public.

The amended version of the law strengthens financial macro-controls and the professional duties of PBOC, while calling for a “twin pillar” regulatory framework comprised of monetary policy and macro-prudential policy.

Dong Ximiao (董希淼), chief analyst at Merchants Union Consumer Finance, said to Diyi Caijing that the changes were a “major amendment, arriving amidst key shifts in both the domestic and international financial and economic environments.

“This amendment makes major adjustments to the official responsibilities of PBOC, increasing its responsibilities with regard to financial market and financial system macro-regulation, and conferring the central bank with the authority to draft major laws and regulations for the financial sector,” said Dong.

Dong also highlighted PBOC’s acquisition of sweeping regulatory authority over systemically important financial institutions, financial holding companies and key financial infrastructure.

“This will help improve the central bank system, further strengthen regulatory coordination and better satisfy the new demands of central bank responsibilities in a changing financial sector,” said Dong. “It also satisfies changing trends in international financial regulation.”

The amended PBOC law stresses the independence of Chinese monetary policy, with article 32 stipulating that “PBOC is not permitted to provide overdrafts for government finance, and not permitted to directly subscribe for or underwrite sovereign bonds and other government bonds.”

“PBOC is not permitted to provide loans to local governments or government departments at various levels, and not permitted to provide loans to non-bank financial institutions as well as other entities or individuals, unless otherwise determined by the State Council.”

Sun Haibo (孙海波), head of the Financial Regulatory Research Institute (金融监管研究院), said that the amendments also mark the official inclusion of the digital renminbi within the scope of China’s statutory money, serving as the legal basis for the new digital currency.

Article 19 of the amended law stipulates that “the renminbi includes physical and digital forms” (人民币包括实物形式和数字形式), while article 22 clarifies its exclusive character by stipulating that “no entities or individuals may manufacture or sell token tickets or digital tokens to replace the renminbi in circulation on the market,” outlining a maximum fine of half a million yuan.

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