People's Bank of China
The PBoC is China's central bank, managing monetary policy, exchange rates, and a $3.2 trillion foreign reserve stockpile. Unlike Western central banks, it operates under explicit Party control, with the CCP Central Financial Commission setting goals while PBoC chooses implementation tools.
The PBoC resembles a parasitized ant (Ophiocordyceps fungus)—the ant appears to move independently and has all the organs of autonomy, but a parasitic fungus has infiltrated its nervous system and controls major decisions.
The PBoC governor is NOT the most powerful person at the bank—the Communist Party Committee Secretary is, and until 2023 these were different people. The PBoC runs the world's largest currency swap network (40+ countries, ~$590 billion) not for emergency liquidity like the Fed, but as infrastructure for yuan internationalization—a geopolitical tool disguised as monetary plumbing. The 2013 interbank crisis revealed PBoC's actual impotence: it tried to discipline shadow banking by withholding liquidity, overnight repo rates spiked above 20%, and the PBoC backed down—kickstarting the shadow banking explosion it tried to prevent.
Key Facts
Power Dynamics
Implements monetary policy under State Council guidance. Manages exchange rate, foreign reserves, payment systems.
'Operational autonomy, not policy independence.' The Party's Central Financial Commission sets goals; PBoC chooses tools. When the 2015 stock bubble popped, PBoC participated in the bailout not because it wanted to but because the Party ordered it—borrowing from interbank markets to fund stock purchases via China Securities Finance Corporation.
- CCP Central Financial Commission (sets policy)
- State Council (formal supervisor)
- President Xi Jinping (ultimate authority)
- Ministry of Finance (rival for macroeconomic control)
- NDRC (controls capital allocation, often contradicts PBoC)
- CCP Central Financial Commission (the real boss)
- State-owned banks (transmission mechanism, often resist)
- Ministry of Finance (rival)
- Major shadow banks (systemically important, politically connected, uncontrollable)
Revenue Structure
People's Bank of China Revenue Sources
- Interest on foreign reserves ($3.2T) 70% →
- Remuneration on required reserves 20% →
- Seigniorage on currency 5% →
- Central bank bills 5% →
Mostly US Treasuries at 2-3% yield
PBoC pays below-market rates
Sterilization instruments, negative carry
Profitability depends on capital controls—financial repression keeps domestic yields artificially low. The cost isn't on PBoC's balance sheet; it's ¥100+ trillion of household savings earning below-market rates, subsidizing the state.
Fed and ECB earn seigniorage on currency voluntarily held globally. PBoC earns 'seigniorage' on forced RRR deposits—taxation by another name.
Decision Dynamics at People's Bank of China
August 11, 2015 yuan devaluation: announced before markets opened, immediately implemented, no advance warning. Triggered global panic, ~$1 trillion in capital outflows over next year.
Deleveraging campaign (2016-2019): 3+ years of grinding tightening—raising RRR, restricting shadow banking. Gradual because too-fast deleveraging would expose insolvencies.
Conflict between PBoC's stabilization mandate and Party's growth/employment mandate. The 2013 liquidity crisis showed PBoC trying to discipline shadow banking, but Party overruled when credit crunch threatened growth.
Failure Modes of People's Bank of China
- June 2013 interbank crisis: PBoC tightened to control shadow banking; overnight rates spiked to 20%+, global markets panicked. PBoC backed down within days.
- 2015 stock market crash: PBoC participated in bailout—borrowed ¥2 trillion to fund stock purchases. Central bank became stock market prop.
- 2015-2016 capital flight: After devaluation, $1 trillion fled China despite controls. Yuan convertibility progress erased.
- Subordinate to Party—cannot prioritize price stability over growth when Party says otherwise
- Shadow banking outside control: ~40-60% of credit is shadow banking
- Capital account trap: Can't fully open (outflows) or fully close (kills yuan internationalization)
- Dollar dependence: $3T+ in dollar assets vulnerable to US sanctions
US-China conflict escalates to financial war. US freezes PBoC's Treasury holdings ($1T+) or cuts China from SWIFT/CHIPS. PBoC must choose: defend yuan by selling remaining non-dollar reserves (collapse anyway within months) or impose total capital controls (kill yuan internationalization, banking crisis). CIPS alternative exists but is tiny.
Biological Parallel
The ant appears to move independently, foraging and climbing—it has all the organs of autonomy (PBoC has all central bank tools). But the fungal parasite has infiltrated its nervous system and controls major decisions, particularly crisis responses. The ant climbs the plant not because it wants to, but because the fungus directs it. The PBoC makes 'independent' technical decisions until a decision matters politically—then Party control becomes visible. The 2015 stock bailout was the fungal takeover moment: central bank suddenly buying equities, something no 'independent' central bank would do.
Key Agencies
Interest rate and liquidity management
Open market operations
FX reserves management and capital controls