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China Shifts Strategies to Boost Yuan
In recent times, China has made strategic moves to stabilize its currency, the yuan, by using state banks to buy and provide market advice. This significant shift is a far cry from their 2015 method when the People’s Bank of China (PBOC) utilized central bank resources to secure the currency in the face of a shaky economy.
Modern Approach Toward Currency Stability
This year, with China’s economy showing instability and funds departing the nation, the PBOC has implemented a notably different strategy. Instead of depleting the reserves, the central bank directed the market on what appropriate selling is and isn’t. They executed careful and recurrent guidance to market players, helping resist the downward pressure on the yuan.
The Effects of the New Strategy
Although this hands-on approach has prevented a severe landslide in the value of the yuan, it has led to some negative outcomes. The intervention has significantly impacted large sections of China's foreign exchange market, resulting in a plunge in trading volumes. It's also raised uncertainties about the yuan's potential of becoming a globally recognized reserve currency.
Non-Standard Measures to Intervene
The PBOC resorting to unconventional means to intervene in the foreign exchange markets is considered an emergency measure to prevent the yuan from crashing at an alarming rate.
Against the Current
In contrast to the 2015 strategy that saw China slashing the yuan's midpoint, recent management approaches have been more nuanced and directed. For instance, to curb volatility, state banks purchased yuans whenever the currency was under threat.
Strategizing on the Field
At the same time, smaller banks were verbally advised to reduce dollar holdings, cutting dollar deposit rates, and encouraging the public to switch their dollar receipts into yuan.
Pressure on Bankers and the Outcome
Not surprisingly, the pressure on bankers parallels the pressure on the yuan itself. In response, Chinese bankers have scaled back trading, especially dollar purchases. However, for the time being, it appears that the currency has stabilized comfortably.
