China Sells Dollars in Desperate Bid to Keep Yuan Afloat

The US dollar and Chinese yuan are being seen in Fuyang City, Anhui Province, China, on Ju
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The People’s Bank of China (PBOC), central bank for the Chinese Communist regime, on Tuesday pushed a massive sale of dollars by state banks in a desperate bid to prop up the cratering yuan.

China’s currency lost four percent of its value against the dollar over the past two months, a serious problem for a Chinese economy that appears to be fizzling out after early signs of post-pandemic recovery. Nervous investors have been underwhelmed by the stimulus measures Beijing has announced thus far.

The yuan managed a 0.4-percent recovery on Tuesday after the big dollar sale, another underwhelming result that might deepen investor unease, although some observers felt China accomplished its essential mission of keeping the yuan from sliding past 7.25 to the dollar.

Perhaps more importantly, analysts noted the Chinese government is growing visibly uneasy, a major change from its usual insistence that everything is going according to plan and all bad economic news is just a Western plot to undermine China’s growth.

Bank of Singapore currency strategist Moh Siong Sim told Reuters that Chinese leaders are “sending more signals now they’re uncomfortable.”

“There is weariness that the yuan weakness may have got to the point where the currency weakness could affect confidence that in turn fuels currency weakness, and there is a need to kind of make sure that we don’t spiral into that kind of a situation,” Sim said.

Reuters reported the Chinese dollar selloff began late on Monday and found no shortage of buyers on the international market. In fact, UBS analysts said there “might have been efforts by the authorities to neutralize the impact from their spot intervention” because it went too far.

Another Reuters analysis on Tuesday suggested China is not only worried about the yuan losing value against the dollar but also that its value has dropped 2.16 percent so far this year against the currencies of China’s major trading partners.

Japan is undergoing a similar struggle with currency value and might pursue comparable strategies to shore up the yen. In Japan, 145 yen to the dollar is seen as a dangerous threshold, much as China views 7.25 yuan to the dollar. The yen was trading at 144.38 to the dollar on Wednesday morning.

Bloomberg News predicted on Wednesday morning that China would “pull back” from further currency intervention, even though the yuan actually dipped below the 7.25 threshold for the first time since November on Tuesday afternoon.

“The PBOC’s recent actions are more about blunting the pace of yuan depreciation rather than trying to draw some line in the sand,” said Asia FX Strategy chief Alvin T. Tan.

“We are likely to get further fixing guidance if dollar-yuan starts to rise quickly again through 7.25, or it approaches certain key psychological levels, such as last year’s high near 7.33,” Tan said.

China’s state-run Global Times, as usual, blithely cited “Chinese experts” who praised the “recovery momentum of the Chinese economy” and predicted downward pressure on the yuan would evaporate soon.

“China is still on the course for a sustained recovery, even though some economic indicators point to a moderate growth. There is still large room for policymakers to launch more targeted stimulus measures to boost the economy,” Everbright Bank economist Zhoul Maohua assured the Global Times.


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