China State Banks Sell Dollars For Yuan

China's major state-owned banks were seen busy selling US dollars to buy yuan in both onshore and offshore spot foreign exchange markets this week to slow the yuan’s depreciation, banking sources told Reuters.

Photo Insert: The yuan has lost about 2.4% against the dollar since this month, and 6% since the start of the year.

Though they also trade on their own behalf or to execute clients' orders, state banks often act at the behest of the central bank when the yuan is under pressure, as it is now.

"State bank dollar selling has become a new normal to slow the pace of yuan depreciation," said one Shanghai-based trader. Such dollar selling could limit falls in the offshore yuan and prevent it from diverging too far from its onshore counterpart.

The yuan has lost about 2.4% against the dollar since this month, and 6% since the start of the year.

One tactic that does appear to have worked is state banks offering to lend less yuan in the offshore Hong Kong market, as liquidity tightness there helped to limit the yuan's decline this week, traders said.

Hong Kong's overnight yuan borrowing costs jumped to the highest level since April 2022 on Wednesday, with the CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) rising across the board.

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