How is the PBOC Reacting to a Weakening Chinese Yuan?
As trade tensions between US and China continue to rise, the Chinese Yuan has fallen by over 2.5% against the US dollar after the most recent round of tariff hikes. At the time of writing, USD/CNH is trading at 6.92, just a shade under the 7.00 level.
A weakening currency typically spells trouble for investor confidence, a vital issue for China in times of strained relations with the US. However, the central bank PBOC has not yet stepped in to stop the devaluation of the currency.
Last year, the bank had intervened to keep the yuan price steady by raising the cost of shorting it through hikes in reserve requirements on forwards. State banks also leveraged swaps and sold off dollars to prop up the value of the yuan during this time.
Analysts see this move as China’s way of expressing more confidence in the currency. The PBOC Vice Governor, Liu Guoqjang, remarks, “Nothing has gone wrong, and (we) will not allow anything to go wrong.”
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