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

The term China's State Administration of Foreign Exchange (SAFE) refers to a national regulatory agency that oversees activities in China's foreign exchange market. The agency was founded in 1979 and is based in Beijing. SAFE functions as an official state-run bureau under the People's Republic of China and is part of the country's central bank. As of December 2020, it held approximately USD $3.22 trillion in foreign currency reserves.

Key Takeaways

  • China's State Administration of Foreign Exchange is the Chinese government's foreign exchange and international trade agency.
  • SAFE is responsible for drafting rules and regulations in the forex market, and managing foreign exchange reserves held by China.
  • The agency works with the Chinese government and the Peoples' Bank of China to strengthen the country's financial stature both domestically and internationally.
  • It is headquartered in Beijing, but has offices and sub-branches across China.

Understanding China's State Administration of Foreign Exchange

China's State Administration of Foreign Exchange was created in 1979 in the nation's capital, Beijing, where it is headquartered. The agency operated independently until 1998, when the Chinese government brought it under the control of the People's Bank of China (PBOC). The government's move was to boost the image and influence of the PBOC as a central bank.

SAFE has a series of administrative offices or branches, central sub-branches, and sub-branches set up in different provinces and cities across China, which report directly to the federal government. There are a total of 36 branches, 309 central sub-branches, and 517 sub-branches in the agency's network.

The agency is administered at the state level and is made up of seven departments, which oversee its primary functions. These main responsibilities include:

  • Drafting policies and regulations related to foreign reserves and foreign exchanges
  • Supervising and inspecting forex transactions
  • Managing China's forex, gold reserves, and foreign currency assets

SAFE is also involved in the study and implementation of policy measures for the advancement of the convertibility of the country's official national currency, the renminbi (CNY/RMB). The significance of an adjustment in the currency's value to the global economy, along with China's huge forex reserves, makes the agency an increasingly important player in international forex and financial markets.

The terms renminbi and yuan are often used interchangeably to describe China's currency—where renminbi refers to the actual name of the currency and yuan is the unit of account for the country's financial system.

Special Considerations

SAFE has a number of major functions. In addition to managing and administering the forex market, and drafting laws and regulations, it also oversees statistics, monitors the balance of payments and the external credit and debt, and releases relevant information according to regulations.

The agency is also responsible for:

  • Developing the country's forex market
  • Conducting studies about and making suggestions on policy for forex reform
  • Enforcing laws to ensure market participants don't violate regulations
  • Developing and planning standards and requirements for automated forex administration
  • Partaking in global financial activities
  • Meeting and following the State Council and central bank's interests