You can exchange money in Sost. A number of the shops in town change money, and I suspect you'll get better rates here than in China, though I'm not an expert. I changed Yuan to Rupees here, and got a decent rate.
I have no idea what the official rules are, but unless things have changed in the last couple of years, the border officials in Sost are some of the friendliest, most relaxed border guards anywhere on the planet, at least when it comes to foreign tourists. Keep your money tucked away somewhere, and you're unlikely to have any problems. There was an informal baggage check at this border when I crossed, but as soon as the official saw my foreign passport, he waved me into Pakistan with a smile, and didn't bother to so much as take a single look inside my bag.