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Establishment of State Administration of Foreign Exchange as System Reform of Bank of China (1979 - 1980)


 

From the founding of the People's Republic of China to early 1979, there was not a state authority especially for the management of foreign exchange. For a long period of time, as a specialized foreign exchange bank chartered by the state, Bank of China assumed the duty of foreign exchange management. In order to conform to Chinese economic reform, and give full play to Bank of China's role in foreign exchange management, operation and foreign exchange funds organization, Bank of China must carry out system reform. This was another major turning point in its history.

In February, 1979, People's Bank of China put forward the reform program for Bank of China. The program consisted of the following aspects: (1)In order to enhance foreign exchange management, People's Bank of China recommended the establishment of State Administration of Foreign Exchange and separation of Bank of China from People's Bank of China without change to its name, so that "State Administration of Foreign Exchange" and "Bank of China" would be two brands under the same institution; (2) nine divisions including international settlement, foreign exchange management, planning and funds management, credit, finance, operation and international finance research should be set up under the Bank of China head office and the State Administration of Foreign Exchange; (3) Bank of China General Management Department should be renamed as Bank of China Head Office; (4) the head office and branches of Bank of China and State Administration of Foreign Exchange were authorized to manage state foreign exchange as government institutions with most of their business activities being enterprise operation in nature, so organizations of Bank of China at all levels were managed as enterprises with independent accounting system.

In March 1979, the State Council approved the application report for Bank of China's system reform and distributed it to local authorities for implementation. In April 1979, People's Bank of China issued a special notice on the implementation of State Council Approval of People's Bank of China's Request on Reforming the System of Bank of China. The nature and task of Bank of China were made clear in the notice: Bank of China was a specialized foreign exchange bank designated by the State, undertaking unified operation and centralized management of the State's foreign exchange business. Since 1979, Bank of China had practiced three-level accounting system: head office, branch and sub-branch. Funds for business operation should be under unified control of Bank of China Head Office, and Bank of China's local credit funds for foreign trade should be authorized and allocated by Bank of China head office.

As a department under direct control of the State Council, the basic tasks of Bank of China in the new period were determined as follows: fulfillment of the duty as a specialized foreign exchange bank; engagement in international financial activities; foreign exchange related work including organizing and accumulating foreign exchange funds, as well as management and utilization of the funds so that they would play a role of promotion, adjustment and supervision of production and circulation, thus serving as an accelerator for the development of the four socialist modernizations.

In September 1980, Articles of Association of Bank of China was revised at the second board meeting of directors and supervisors of the fourth session for Bank of China, clarifying that Bank of China was a socialist state-owned enterprise and specialized foreign exchange bank of the People's Republic of China. In the aspect of business scope, in addition to the business of general foreign exchange banking, government-oriented articles were added such as international inter-bank deposits and loans, international gold trading, organizing and participating in syndicated loans, issuing foreign currency bonds authorized by the State, and attending international financial meetings authorized by the State.

After system reform, Bank of China became an economic entity under direct control of the State Council. This was favorable for its international reputation, engagement in international financial activities and organization of foreign exchange funds.

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