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The People’s Bank of China (PBOC) announced on August 21 it will establish a foreign exchange department.
The department has approval from the State Council, and its core functions include administering foreign exchange and regulating the domestic foreign exchange market.
The reform is considered a crucial aspect in dealing with macro-economic controls and financial regulations, said Richard McKeown, partner at Simmons & Simmons.
“The new department will allow for better coordination of policy-making analysis and research of exchange rates,” McKeown said. But he added that the new measures could also reduce China’s accumulating foreign exchange reserves.
Under the reform package the PBOC will also cooperate further with the three key regulators, the China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission.
Regulations and supervision will be strengthened as financial regulations are becoming a crucial issue to China, said McKeown.
“The relevant authorities in China are increasing the level of financial regulations, it will be interesting to see what the future reforms will be and the impact of such reforms,” he said.