the financial institutions to set deposit rate above the benchmark rate. the previously adopted policy of allowing some rural credit cooperatives to set deposit rate above the benchmark rate had its special background. at that time, postal savings system attracted large amount of deposits from the rural area, but could not use these fund directly to serve the development of agriculture and rural area and the need of farmers. the rural credit cooperatives are in a disadvantageous position in competing for deposits, since the postal savings system not only has its own operational advantages but also enjoy favourable policies. to promote the development of rural financial services, we introduced the policy of allowing the rural credit cooperatives to set their deposit rate above the benchmark rate. now we face some new issues. first, since august 2003, the interest rate policy for the newly increased postal savings deposit has been changed, thus alleviating the problem of rural deposit competition. second, the increase in deposit interest rate has narrowed the interest spread, resulting in difficult financial situation of some of the rural credit cooperatives. third, some county - level financial institutions that were not given the flexibility to set their deposit rate above benchmark rate complained that they were facing unfair competition from the rural credit cooperatives. therefore, the policy of allowing the deposit interest rate to move upward against the benchmark rate need to be carefully examined and evaluated. in china, almost no financial institutions offer below - benchmark interest rate on deposits. while in other countries, many banks set their deposit rate below the central bank ’ s benchmark rate. one of the main reasons is that financial regulation in china has not strictly enforce the requirement in basle committee ’ s capital accord, and the excessive expansion of the balance sheet of the deposit - taking institutions has not been effectively contained. china banking regulatory commission is going to introduce stricter capital adequacy requirement. after such requirement is imposed, the banks that have inadequate capital and have difficulties in strengthening their capital base must reduce the growth of their risk assets. without effectively lowering the risk weight of the assets, they will have to tighten their balance sheets. so they may offer lower interest rate on the deposits. third, further relaxing the regulation on interest rates. we need to consider whether it is necessary to regulate some interest rates or to set narrow floating bands on these interest rates. iii. gradually establishing effective benchmark yield curve market - based interest rate reform will contribute importantly to the formation of effective benchmark yield curve. at present, there are insufficient

. today, china is a leading fintech player and there is even speculation that pboc may become the first central bank in the world to issue its own digital currency – a topic that dr zhou will probably touch on, and if he does not, one of you i am sure will ask him about! and now, ladies and gentlemen, please join me in welcoming dr zhou xiaochuan to deliver the tenth mas lecture. 2 / 2 bis central bankers'speeches