The People's Bank of China Law Welcomes Major Revision: Emphasizes the Independence of Monetary Policy and Increases Punishment for Violations
After a lapse of more than ten years, another important law in the financial industry ushered in a major overhaul.
A few days ago, the People’s Bank of China drafted and issued the “Law of the People’s Republic of China on the People’s Bank of China (Revised Draft for Solicitation of Comments)” (hereinafter referred to as the “Draft for Solicitation of Comments”), clarifying that any unit or individual is prohibited from making and selling digital tokens and does not involve fiscal deficits. Monetization, raising the fine limit to 20 million yuan, the central bank’s statutory responsibilities will be greatly expanded.
The revision emphasizes financial services to the real economy, strengthens financial macro-control, and revises and improves the responsibilities of the central bank; establishes a two-pillar control framework for monetary policy and macroprudential policy, and improves the overall supervision of systemically important financial institutions, financial holding companies, and important financial infrastructure System, increase penalties for financial violations and other important contents.
"This is a major revision." Dong Ximiao, chief researcher of China Merchants Finance, said in an interview with a reporter from China Business News. In the context of major changes in the current international and domestic economic and financial environments, the "People's Bank of China Law" has been updated with the times. Amendments to strengthen the PBC’s responsibilities in macro-prudential supervision and prevention of financial risks will help improve system construction, create a more suitable legal environment for preventing and dissolving financial risks, and maintaining financial stability, and will also help promote the reform of the financial industry. Good service to the real economy.
The central bank stated that the revision of the "People's Bank of China Law" is necessary to build a modern central bank system, prevent and resolve systemic financial risks, and also conform to the trend of international financial regulatory reform.
Establish a macro-prudential policy framework
The "Draft for Solicitation of Opinions" includes general rules, organizational structure, RMB, business, supervision and management responsibilities, supervision and management measures, financial accounting, legal responsibilities and supplementary provisions, with a total of 9 chapters and 73 articles.
From the content point of view, it mainly involves eight aspects: emphasizing financial services to the real economy and strengthening financial macro-control.
The responsibilities of the People’s Bank of China have been revised and improved.
Establish a two-pillar regulatory framework for monetary policy and macro-prudential policies.
Improve the overall supervision system of systemically important financial institutions, financial holding companies and important financial infrastructure.
The People's Bank of China will further play its role in maintaining financial stability and preventing and handling systemic financial risks.
And, improve the RMB management regulations, improve the governance system of the People's Bank of China, improve the means of the People's Bank for performing duties, and increase penalties for financial violations.
In terms of revising and improving the responsibilities of the People’s Bank of China, it clearly formulated drafts of major laws and regulations in the financial industry, formulated basic systems for prudential supervision, took the lead in systemic financial risk prevention and emergency response, three “coordinations”, and organized and implemented national financial security reviews.
Regarding the establishment of a two-pillar regulatory framework for monetary policy and macroprudential policy, the monetary policy toolbox has been improved to moderately increase the flexibility of monetary policy tools; a macroprudential policy framework has been established to clarify macroprudential policy objectives to strengthen counter-cyclical adjustment and penetration Focusing on formal supervision, we will improve the macro-prudential policy toolbox of financial institutions such as countercyclical capital buffers, risk reserves, and stress testing.
In this regard, Dong Ximiao told China Business News reporter: “This revision will make major adjustments to the responsibilities of the People’s Bank of China, increase the macro management responsibilities of the financial market and financial system, give the central bank the right to draft major laws and regulations drafts in the financial industry, and coordinate the importance of the supervision system. Financial institutions, financial holding companies and financial infrastructure, etc. This will help improve the modern central bank system, further strengthen supervision and coordination, and better meet the new requirements of the central bank’s responsibilities imposed by the development and changes of the financial situation, and it is also in line with the trend of international financial supervision ."
Provide a legal basis for the issuance of digital currency
The content of the central bank's issuance of digital renminbi has always been the focus of the market, and this amendment provides a legal basis for the issuance of digital currency.
Sun Haibo, Dean of the Institute of Financial Supervision, recently wrote an analysis that this time the digital currency was officially included in the form of legal tender, which became the legal basis for the official implementation of digital currency across the country. It will have a profound impact on the management system reform of the payment system and the internationalization of the RMB.
The "Draft for Solicitation of Opinions" perfected RMB management regulations.
There is a clear statement in the content of Article 19, "RMB includes physical form and digital form."
Article 22 stipulates that no unit or individual may make or sell token tickets and digital tokens to replace RMB in circulation in the market.
In addition, Article 65 also imposes penalties on the production and sale of tokens, coupons and digital tokens to replace the circulation of RMB in the market. The People’s Bank of China shall order the cessation of illegal activities and destroy illegal production and sale For token tickets and digital tokens, the illegal income shall be confiscated, and a fine less than five times the illegal amount shall be imposed; if the illegal amount cannot be determined, a fine of 100,000 yuan up to 500,000 yuan shall be imposed.
Moreover, in the eyes of industry insiders, the "Draft for Comment" is equivalent to reiterating the document issued by the first seven ministries and commissions, and at the same time it has been upgraded from a legal document to a legal level.
In fact, as early as September 2017, the ICO had been sentenced to the death penalty by the supervision.
The Announcement on Preventing Token Issuance Financing Risks jointly issued by seven ministries including the People’s Bank of China and China Banking Regulatory Commission stated that token issuance financing is essentially an unauthorized and illegal public financing behavior, suspected of illegal sale of tokens Illegal issuance of securities and illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities.
Starting from the date of the announcement, all types of token issuance financing activities should be stopped immediately.
Organizations and individuals that have completed the issuance and financing of tokens should make arrangements such as liquidation and withdrawal, reasonably protect the rights and interests of investors, and properly handle risks.
Xiao Sa, a partner of Beijing Dacheng Law Firm, believes that the "Draft for Solicitation of Comments" accurately locates the illegality of the behavior. ICO is not only an illegal act but also a crime.
After the law is passed in the future, the possible result is that certain ICOs or companies that sell tokens as a business will be prosecuted by criminal law.
In the future, the selling behavior, production behavior and financial behavior of the currency circle may be regarded as crimes.
No mention of fiscal deficit monetization, raising the fine limit
During the epidemic, "monetization of fiscal deficits" became the focus of debate.
According to current laws and regulations, the People's Bank of China is not allowed to overdraft government finances, and cannot directly subscribe or underwrite government bonds and other government bonds.
Judging from the "Draft for Comments", this revision does not involve the content of fiscal deficit monetization, and once again emphasizes the independence of monetary policy.
Article 32 stipulates that the People's Bank of China shall not overdraft government finances, and shall not directly subscribe or underwrite government bonds and other government bonds.
The People's Bank of China may not provide loans to local governments or government departments at all levels, nor may it provide loans to non-bank financial institutions and other units and individuals, unless the State Council decides that the People's Bank of China may provide loans to specific non-bank financial institutions.
Wang Yuling, President of the Wuhan Branch of the People’s Bank of China, said that at present, the effect of monetary policy directly reaching the real economy is showing. With the in-depth advancement of supply-side structural reforms, the coordination of monetary policy and fiscal policy has been strengthened, and finance supports the real economy. The blocking point will be further opened up, and there is no need to adopt extreme policy measures such as fiscal deficit monetization.
The amendment of the law must not only meet the needs of economic development, but also maintain a certain degree of stability and create a stable expectation for the market.
The system in which the central bank and the treasury perform their duties and have clear boundaries is adapted to current needs.
Dong Ximiao believes that insisting on the requirement that the People's Bank of China must not overdraft the government's finances, or directly subscribe or underwrite treasury bonds and other government bonds, is the bottom line requirement for serious financial discipline, prevention of deficit monetization, and prevention of inflation and asset bubbles.
From a practical point of view, my country adheres to a normal monetary policy, and there is still ample room for monetary policy. There is no need to implement unconventional monetary policies such as direct purchase of national debt.
In addition, the "Exposure Draft" stipulates that one of the monetary policy tools that the People's Bank of China can use to implement monetary policy is to provide loans to commercial banks, rural credit cooperatives, rural cooperative banks, policy banks, and development banks.
Compared with the current law, the provision of loans to credit cooperatives, policy banks and development banks has been added.
In addition, in the expression of monetary policy, the original "determining the central bank's benchmark interest rate" was changed to "determining the central bank's policy interest rate."
Sun Haibo believes that the main consideration is to take into account the reform of interest rate marketization. The central bank loan has cancelled the guide interest rate and changed to LPR with a little bit of pricing. The future marketization of deposits is still expected.
In response to the low cost of illegal financial market violations, the "Draft for Comments" has increased the penalties for financial violations, stipulating that serious violations can be given heavier penalties, and the maximum fine will be increased to 20 million yuan; The agency has increased penalties such as ordering business suspension, revoking licenses, and prohibiting market entry.
Dong Ximiao said that the "Revised Draft" strengthens the direction and principles of strict financial supervision, grants the People's Bank of China the power of inspection and investigation, and greatly increases penalties for financial violations.
Setting up Chapter 6 "Supervision and Management Measures" and empowering the central bank to inspect and supervise financial institutions and other units and individuals will help promote the central bank to better perform its duties and enhance its authority and effectiveness of supervision.