Speech of Governor Zhou Xiaochuan At the Inauguration Ceremony of The People´s Bank of China Shanghai Head Office   August 10, 2005   Honorable General Secretary Chen, Honorable Mayor Han, Colleagues and friends from the financial industry Dear guests, and Ladies and gentlemen,   First of all, I would like to take this opportunity to express my gratitude to all the concern and support you have kindly rendered to the People´s Bank of China over so many years, and I would also like to thank you for availing yourself from your busy schedule to attend the inauguration ceremony of the People´s Bank of China Shanghai Head Office. On today´s significant occasion, I wish to focus my remarks on two specific issues. The first issue explores the rules for developing a financial center, and the second issue aims to clarify questions concerning the reform of the RMB exchange rate regime.   For the first issue, the answer is quite straightforward. The People´s Bank of China Shanghai Head Office is established for the purpose of strengthening functions of the central bank head office related to improving financial market operations and financial services.   First, both international experiences and the Chinese practices in the process of reform and opening up have well demonstrated that greater marketization of the economy could lead to increased cross-region economic activities, and consequently an improved integration and scale of the economy which calls for strengthening of the functions of the central bank head office in terms of market operation and provision of financial services. Marketization and internationalization expose economic development undergo constant changes, leading to increased reliance of monetary policy conduct and transmission on the money market and foreign exchange market. The development of the financial market itself will also help to expand financial services to clients in different regions of the country and to cultivate a limited number of financial markets serving the whole nation and even the world, not segmented financial markets dotted across the country serving different regions. For the time being, Shanghai has already become the harbor for some financial markets with national influence, such as the foreign exchange market, the gold market, securities market, futures market and the inter-bank bond market etc.   However in the past when the centralized economic system was prevalent or in the early periods of reform when marketization was barely developed, financial organizations favored an institutional structure featuring "parallel set-up of business departments at the subordinate and head office level" which means branch offices of a financial institution in different locations must establish corresponding business departments as contact points to interface with relevant departments at the head office. By doing so, information could be collected and centralized to the highest authority that could in turn decompose the centrally made plans level by level to different regions and localities for implementation. With the socialist market economy preliminarily established and improved in China, the outdated organizational structure of the People´s Bank of China no longer fits in with its mandate to improve market operation and financial services. Likewise, large financial institutions in China also face such an organizational problem.   Second, the deve