China State Banks: China’s large state-controlled banks have been aggressively exchanging U.S. dollars for yuan on domestic and overseas spot currency markets, according to insiders. These markets are “spot” because they start immediately. Experienced or knowledgeable persons provided this information. This action is considered as an attempt to prevent the yuan from depreciating.
The central bank often requires state banks to act when the yuan is weak, even if they trade for themselves or fulfill customer requests. This circumstance is similar to present, thus pushing is crucial.
A Shanghai merchant stated state banks now sell their dollar holdings to stabilize the yuan. This dealer acted because the yuan has been falling.
According to two sources and two others, these state banks’ international branches dumped dollars during trade hours in London and New York this week.
These institutions may prevent large offshore yuan declines by doing this. This will prevent it from deviating from its onshore version. One yuan has fallen 2.4% this month and 6% since January. At 04:42 GMT, one dollar was worth 7.3145 yuan onshore and 7.3400 abroad.
The recent dramatic decrease of the yuan can be attributed to various things. The growing yield difference between China and the U.S. is most crucial. Growing investor anxiety over China’s faltering economy and underground banking and real estate failures are also crucial.
Investors expected China to launch many large economic stimulus projects. The reaction has surprised investors less than expected. In the interim, the People’s Bank of China (PBOC) has eased monetary policy to revive the economy. This pushed the yuan, but it helped the economy.
This week, China-US yield discrepancies reached their biggest level in 16 years. This week, the yield gap between the countries peaked. Many believe the People’s Bank of China (PBOC) may loosen monetary policy after an unexpected decline in interest rates. Even if it could compress the yuan, this could happen. The rumor stems from the rapid interest rate decline.
Over the past few months, analysts have observed the People’s Bank of China (PBOC) announcing unexpectedly strong fixings and state banks dumping dollars to keep the yuan from falling. Both of them were done to stabilize the yuan.
In September 2022, the People’s Bank of China (PBOC) advised huge state-owned banks to trade dollars for yuan on offshore markets to preserve the yuan’s value. The PBOC aimed to maintain the yuan’s value.
The country’s central bank made reforms in July to assist businesses get more money from foreign lenders. The bank wanted to increase foreign cash to boost the yuan. The hefty interest rates on these loans negate any gains from this adjustment.
However, state banks limiting yuan lending in Hong Kong’s offshore market appears to have worked. This strategy reduced yuan loaned out, so it worked. Dealers thought this paucity of cash may have kept the yuan from tumbling further this week. This was to prevent the yuan from falling.
On Wednesday, Hong Kong’s overnight yuan borrowing cost reached a level not seen since April 2022. This is the greatest since then. Additionally, the Hong Kong Interbank Offered Rate (CNH HIBOR) rose. A banker clarified that this financial issue was not as bad. Because withdrawing too much yuan cash could slow the bond market.
Our Reader’s Queries
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China’s banking industry is comprised of a diverse range of institutions, including government-owned and private banks. This sector encompasses state-owned banks, joint-stock banks, city commercial banks, rural commercial banks, and foreign banks. With such a varied landscape, China’s banking system offers a range of options for individuals and businesses alike.