China’s central bank ramps up pressure on yuan bears as currency dives toward record low offshore

Name: Chinese man’s bizarre ways of hiding his money
Uploaded: 2023-09-13T09:00:11.000Z
Duration: 2 min 17 s
Description: Chinese man’s bizarre ways of hiding his money

Currency traders trying to bet against the yuan are facing growing headwinds from China’s efforts to ramp up the cost of doing so in Hong Kong

The PBOC plans to issue more yuan-denominated bills than are maturing in Hong Kong next week, a move that will pressure borrowing costs with liquidity already tight

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it is getting more expensive for traders to borrow the Chinese currency in the overseas market and sell it against the dollar. Photo: dpa

Bloomberg

Published: 5:00pm, 13 Sep 2023Updated: 6:13pm, 13 Sep 2023

Currency traders trying to bet against the yuan are facing growing headwinds from China’s efforts to ramp up the cost of doing so in Hong Kong.

The costs for banks to borrow the yuan from each other in Hong Kong surged across the curve this week, with the rate on three-month contracts extending a five-year high on Wednesday. That means it is getting more expensive for traders to borrow the Chinese currency in the overseas market and sell it against the dollar.

Beijing has ramped up its fight against yuan bears after the currency’s slump toward a record low offshore, with the People’s Bank of China delivering a strong verbal warning against speculation on Monday amid several other measures. Policymakers for years have been highly vigilant of any rapid declines in the yuan, as such moves can trigger a vicious cycle of capital outflows and even sharper depreciation.

On Wednesday, the PBOC said it plans to issue more yuan-denominated bills than are maturing in Hong Kong next week, a move that will also pressure borrowing costs with liquidity already tight in the run up to quarter-end. That marks a second straight month that Beijing has raised its sales of yuan bills.

“We see the authorities as ramping up efforts to curb yuan’s depreciation, and liquidity in the offshore market is being tightened as a part of the toolkit to rein in yuan weakness,” said Eddie Cheung, a senior emerging markets strategist at Credit Agricole CIB in Hong Kong, “We don’t think markets are too keen to test the authorities here.”

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Chinese man’s bizarre ways of hiding his money

While engineering a liquidity crunch overseas is an effective tool to squeeze yuan bears, it is not a preferred one due to the high reputational cost it carries. Such a measure can dent the offshore yuan’s image as a more liberalised version of its onshore counterpart and also hurts Hong Kong’s role as an Asian financial centre free of China’s control.