PBOC essay - Will Goss FNCE4070-001 Essay Assignment The...

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Will Goss FNCE4070-001 3/14/2016 Essay Assignment The People’s Bank of China As is true in any advanced economic system, there is a need for a regulatory governing body in order for the system to operate smoothly. So just as the United States has the Federal Reserve, or FED, and Europe has the European Central bank (ECB), it is only natural to assume that the world’s second largest economy would need a similar establishment to oversee such a diverse and complex financial system. In China, the central bank is known as the People’s Bank of China (PBC). The bank was founded in late 1948 after the consolidation of three large Chinese banks. In 1983 it was decided that the PBC would operate as a central bank, a decision later confirmed by the National People’s Congress. In 2003, the 10 th National People’s Congress met to specifically outline the central bank’s functions (PBC.gov, 2016). The PBC has many similar functions to those of the FED or ECB, though the Chinese central bank is generally more involved in economic affairs than both the FED and European Central Bank. The PBC’s primary functions include creating laws and regulations governing monetary policy, as well as implementing those laws. Other duties include preventing financial instability, working to fight fraud and other white collar crime, as well as issuing the Chinese Yuan (CNY) and facilitating its circulation (PBC.gov, 2016). However, even though the FED and PBC may appear to have similar functions, they operate in a much different capacity as China is not a democracy, and therefore does not have a capitalistic, free-market society. For this reason, 1
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the PBC has become imperative to the stability of the Chinese economy and therefore must extend its reach into areas of the economy that other more capitalistic societies might not. The largest hindrance to organic economic growth in China, according to many economists, is the absence of democracy and a free-market economy. When discussing whether the Yuan has any reasonable chance to catch up to the dollar in the next 50 years, David Berson of Nationwide Insurance stated, “the odds go up if freedom and capitalism are allowed” (Talley, 2015). Economist Bernard Baumohl echoed that same sentiment, saying that “Until China fully transforms its nation into an open democracy with an economy much more transparent, subject to market forces…there is no chance the Renminbi [Yuan] will overtake the U.S. dollar” (Talley,
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