Beijing
China’s central bank, the People’s Bank of China (PBOC), is intensifying its oversight of large-scale dollar purchases by domestic companies as the Chinese yuan faces increasing depreciation pressure. To purchase $50 million or more in US dollars, firms will now require approval from the PBOC.
This decision comes as the yuan has depreciated by around 6% against the US dollar this year, reaching levels last seen during the 2008 global financial crisis.
The PBOC has been issuing consistently stronger-than-expected midpoint fixings for the yuan and increasing the supply of US dollars to stabilize the currency. In addition, it has urged some banks to reduce or delay their US dollar purchases to slow the yuan’s depreciation. State-owned banks have been actively selling dollars in both onshore and offshore markets to elevate the cost of shorting the Chinese currency.
These measures are implemented as concerns mount about the impact of a weakening yuan on China’s economy, which is already grappling with challenges tied to slowing growth and a downturn in the property market. The PBOC’s objective is to prevent the yuan from depreciating beyond a certain threshold, as a sharp drop could lead to capital outflows and financial instability. This move underscores the Chinese government’s determination to maintain stability in the currency market and prevent excessive depreciation, which could have far-reaching consequences for the domestic and global economy. It also signals the authorities’ vigilance in regulating currency flows to safeguard against potential risks associated with a rapidly weakening yuan.
