- The People’s Bank of China is urging state-run banks to purchase more US dollars to curb the yuan’s rapid rise.
- The Chinese yuan has appreciated nearly 7% against the US dollar since April of last year, squeezing exporter profits.
- Chinese businesses, from tech firms to exporters, are seeking dollar holdings as a safety net against Forex losses.
- Analysts confirm this intervention signals the central bank’s desire to slow the currency’s appreciation pace.
In a strategic move to protect its vital export sector, China’s central bank, the People’s Bank of China (PBOC), is reportedly instructing state-run banks to increase their purchases of US dollars. This action aims to temper the Chinese yuan’s significant rally, which has gained nearly 7% against the dollar since last April. Consequently, exporters are feeling the pinch as their dollar-denominated revenues lose value when converted back into a stronger local currency.
“It means the PBOC is intervening as the yuan’s appreciation is too fast,” said analyst Yuan Tao in a report to Reuters. However, this policy is designed to provide a safety net for businesses that rely on international trade. Companies like Beijing Ultrapower Software Co have already reported a 28% revenue loss attributed to these forex conversion challenges.
Meanwhile, financial institutions like Maybank noted in a client memo that “It is clear that PBOC wants the yuan appreciation pace to slow.” The import and export sector is actively lobbying for a weaker yuan to maintain profitability. Therefore, the central bank’s latest directive serves as a direct response to these growing economic pressures.
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