What Is China's State Administration Of Foreign Exchange (SAFE)?

China's State Administration of Foreign Exchange (SAFE), is China's foreign exchange regulatory agency, which functions as an official state-run bureau under the People's Republic of China. As of August 2020, SAFE holds approximately USD $3.15 trillion in assets. 

Key Takeaways

  • China's State Administration of Foreign Exchange (SAFE) is the Chinese government's foreign exchange and international trade agency.
  • SAFE is tasked with drafting rules and regulations governing foreign exchange market activities, and managing foreign exchange reserves held by China.
  • SAFE works with the Chinese government and the Peoples' Bank of China (PBoC) to strengthen the country's financial stature both domestically and internationally.

Understanding China's State Administration Of Foreign Exchange

The State Administration of Foreign Exchange's (SAFE) primary responsibilities include drafting policies and regulations related to foreign reserves and foreign exchanges, supervising and inspecting forex transactions, and managing China's forex, gold reserves and foreign currency assets. The significance of an adjustment in the renminbi's value to the global economy, along with China's huge forex reserves, has made SAFE an increasingly important player in international forex and financial markets.

SAFE operated as an independent entity until 1998, when the Chinese government brought it under the control of the People's Bank of China (PBOC). The rationale for this move was to strengthen the PBOC as a central bank.

Functions of SAFE

SAFE's has a few major roles, which includes the study and implementation of policy measures for the gradual advancement of the convertibility of the renminbi (CNY/RMB), China's official currency.

It also includes drafting relevant laws, regulations and departmental rules on foreign exchange administration, and overseeing the statistics and monitoring the balance of payments and the external credit and debt, releasing relevant information according to regulations. This according to the SAFE website.

According to the official SAFE website, the bureau has ten essential functions:

  1. To study and propose policy suggestions on the reform of the foreign exchange administration system, prevention of the balance of payments risks, and promotion of the balance of payments equilibrium; to study and implement policy measures for the gradual advancement of the convertibility of the RMB under the capital account and the cultivation and development of the foreign exchange market; to provide suggestions and a foundation for the People's Bank of China to formulate policy on RMB exchange rate.
  2. To participate in the drafting of relevant laws, regulations, and departmental rules on foreign exchange administration, releasing standard documents related to the carrying out of responsibilities.
  3. To oversee the statistics and monitoring of the balance of payments and the external credit and debt, releasing relevant information according to regulations and undertaking related work concerning the monitoring of cross-border capital flows.
  4. To be responsible for the supervision and management of the foreign exchange market of the state; to undertake supervision and management of the settlement and sale of foreign exchange; to cultivate and develop the foreign exchange market.
  5. To be responsible for supervising and checking the authenticity and legality of the receipt and payment of foreign exchange under the current account according to law; to be responsible for implementing foreign exchange administration under the capital account according to law, and to continuously improve management work in line with the convertibility process of the RMB under the capital account; and to regulate management of overseas and domestic foreign exchange accounts.
  6. To be in charge of implementing supervision and checking of foreign exchange according to law, and punishing behaviors that violate the foreign exchange administration.
  7. To undertake operations and management of foreign exchange reserves, gold reserves, and other foreign exchange assets of the state.
  8. To arrange development planning, standards, and criteria for IT-based foreign exchange administration and organizing relevant implementation; to realize supervision of information-sharing with the relevant administrative departments according to law.
  9. To take part in relevant international financial activities.
  10. To undertake other matters as assigned by the State Council and the People's Bank of China.