China Talked Markets Out Of Battering The Yuan

In contrast to its approach in 2015 when it burned $1 trillion in reserves to stabilize the yuan, China has adopted a different strategy to defend its currency amidst economic uncertainties, as reported by Reuters.

Regulators frequently guided market participants through coordinated actions to resist strong downward pressure on the yuan.

This year, as money left the country and China's economy faced challenges, the People's Bank of China (PBOC) sought to stabilize the yuan through orchestrated buying by state banks and providing market guidance to bankers.

Rather than direct official intervention, the PBOC communicated with markets, signaling what type of selling it would tolerate.

Interviews with 28 market participants revealed that regulators frequently guided market participants through coordinated actions to resist strong downward pressure on the yuan.

This approach has prevented a destabilizing slide in the yuan but has also led to reduced trading volumes in China's foreign exchange market, raising concerns about the yuan's potential as a global reserve currency.

PBOC governor Pan Gongsheng emphasized the goal of preventing exchange rate overshooting risks and maintaining stable FX market operations.

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