Explainer | China yuan: what can the central bank do to prevent the currency weakening against the US dollar?
- Analysts expect the People’s Bank of China (PBOC) to impose more controls to prevent a rapid depreciation of the yuan
- The PBOC may cut banks’ forex reserve requirement again and it could restore the so-called countercyclical factor, experts say
The yuan has weakened by more than 10 per cent against the US dollar this year amid large capital outflows from the world’s No 2 economy and aggressive rate hikes by the US Federal Reserve.
Although Beijing keeps a tight grip on money going in and out of the country and manages the yuan exchange rate carefully, it has gradually liberalised cross-border transactions and allowed its exchange rate regime to become more market based over the years.
The International Institute of Finance (IIF) estimated in August that China saw outflows worth 7.7 billion yuan (US$1 billion) in debt, but 1 billion yuan of inflows for equities. Between February and July, China recorded net outflows of US$81 billion via the Stock and Bond Connect programmes, the IIF said.
Analysts expect the People’s Bank of China (PBOC) to impose more controls in the coming weeks to prevent a rapid depreciation of the yuan.
What has China’s central bank done to slow the depreciation of the yuan?
The PBOC has been setting firmer-than-expected midpoint guidance rates since August, a sign that authorities are trying to halt the currency from weakening.
