The People's Bank of China opened its Shanghai head office yesterday.

　　The central bank will move its market-based operations to the metropolis, home to stock and futures exchanges and the country's markets for foreign exchange, gold and inter-bank borrowing.

　　The central bank has been using market-based tools to achieve policy goals for years, but the establishment of its Shanghai head office suggests the development of the country's financial market will attain a new level.

　　A larger market, more types of financial instruments and quicker responses to changes in international markets are all in sight.

　　The move is good news for Shanghai as the city's status as the national financial centre is being reinforced.

　　The central bank uses the trading of bonds, currencies and bills, among other financial products, to meet its policy goals and maintain market stability.

　　With the market playing an increasingly important role in the economy, the central bank's top officials felt it was time to move closer to the market.

　　They need first-hand knowledge and the ability to make market-related decisions where the action is to ensure they move as quickly as possible.

　　The central bank has adopted a more flexible exchange rate system for the Chinese currency. The new system, which is much more complicated than the original one, requires constant attention from leading central bankers.

　　Operating in the financial market is a highly challenging task. The work can be daunting at times, as during the 1997-99 Asian financial crisis.

　　Central bankers' errors could easily translate into huge losses for the government and destabilizing consequences for the market.

　　The central bank must make sure its staff in Shanghai is genuinely talented. More importantly, its decision-making processes and risk control mechanism must be designed to avoid scandalous financial market failures that have taken place at some companies in the past few years.

　　The success of the Shanghai head office will also hinge on smooth co-ordination between staff there and in Beijing.

　　It is the central bank's biggest structural change since the establishment of nine regional offices in 1998 to facilitate the implementation of monetary policy according to different local conditions.

　　The 1998 reform was not successful due to difficulties in co-ordinating the different offices and local governments.

　　The recent reform is mainly an internal change that hardly involves the local government, but still the bank should remember past experience.

　　As for Shanghai, the establishment of the central bank's head office is a sign that the city is becoming a mature financial hub.

　　The exodus of some manufacturing enterprises and problems in the property market have left Shanghai in a soul-searching mood. The city's future lies in the service industry, with financial services at its core.

　　Shanghai should grasp the opportunity to boost growth in banking, insurance, accounting and legal services.