As China's yuan slips to historically weak levels against the dollar, the c...
SHANGHAI - As China’s yuan slips to historically weak levels against the dollar, the central bank’s atypical light touch is spurring speculation that policymakers want to be more judicious in their intervention and have no specific target for the currency.
A weakening yuan risks sparking outflows, a major concern for policymakers keen to retain investor confidence in a slowing economy and acrimonious trade war with the United States. In 2015, a one-off 2% yuan devaluation fueled depreciation expectations, and Beijing burned through about $1 trillion of foreign exchange reserves to fight back.
“Nothing has gone wrong, and will not allow anything to go wrong,” Liu Guoqiang, PBOC vice governor, told the Financial News, a newspaper run by the central bank. A weaker yuan would theoretically help exporters, many of whom are feeling the pinch of U.S. tariffs on billions of dollars worth of made-in-China goods.
But analysts suspect the PBOC’s strategy is not just about targeting yuan levels but also involves managing its currency reserves and a growing international role for the yuan. Those explain the central bank’s reluctance to reduce its dollar reserves too quickly or drive up interest rates in the offshore yuan market in order to make it expensive to short-sell the currency.
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