Reuters released that China’s state-owned banks are selling dollars and buying yuan on open market. Sources said the move was taken to support the Chinese currency, the yuan. Big banks typically trade the country’s foreign markets on behalf of the Chinese central bank. They can sell dollars and buy yuan. The dollar sell-off came after China’s top leaders announced more policy support for the economy. The Chinese economy has suffered a major setback due to Covid-19. Authorities are now looking to boost domestic demand. That is why they have indicated to give more incentives. China will keep the yuan’s exchange rate stable at a reasonable and balanced level, policymakers said. They also promised to strengthen the capital market and restore investor confidence.
HSBC analysts wrote, ‘It is interesting that the Politburo has mentioned exchange rate stability for the first time in recent years. Dealing with the pressures created by the depreciation of the yuan is likely to be a policy priority now,” the note added, adding that the People’s Bank of China’s recent policy of tightening the exchange rate is the latest move. Chinese authorities are working to prop up the country’s weakening yuan. Last week, regulators relaxed existing rules to allow companies to borrow from abroad. On the other hand, China’s central bank is now fixing the middle rate of the exchange rate more tightly than market expectations. Some results of efforts are also showing.
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