The Chinese Central Bank is worried about the Yuan, which is too weak against the USD
Not only Japan is carefully following the trend of its currency. China's central bank has pledged to "resolutely avoid" excessive fluctuation in the yuan's exchange rate as the currency faces renewed pressure against a strong US dollar.
“ [We should] maintain the underlying stability of the yuan exchange rate at a reasonable and balanced level,” according to a statement from the People's Bank of China on Friday, following the quarterly meeting of its monetary policy committee on Tuesday. “ The Chinese economy still faces challenges such as insufficient demand and weak social expectations.” “We will implement prudent monetary policies carefully and effectively, paying greater attention to countercyclical adjustments… to expand domestic demand, strengthen confidence and promote a virtuous economic cycle” . Meanwhile, here is the Dollar Yuan sample
Even if with the usual very distant and informal language, the PBOC's words show considerable concern about the USD/Yuan exchange rate. Interest differentials have helped the US dollar strengthen against other currencies. In recent days, the Chinese yuan has slipped to seven-month lows against the dollar, with the spot yuan hitting 7.2659 against the dollar on Friday, while the Japanese yen also weakened to 38-year lows this week, surpassing the threshold of 161 against the dollar for the first time since 1986.
Rui Meng, a finance professor at China Europe International Business School in Shanghai, said the PBOC had made specific comments on the yuan's recent depreciation pressure.
“Now that the US interest rate remains unchanged, downward pressure is being created on the Chinese interest rate, so there is an expectation that the yuan will depreciate, and this expectation may be self-fulfilling,” he said Rui.
Li Xuenan, a finance professor at the Cheung Kong Graduate School of Business in Beijing, said maintaining exchange rate stability is crucial for China, which is a large exporter and importer.
“Currently, the US Federal Reserve continues to keep interest rates high, putting pressure on several other currencies,” he said. “The Japanese yen collapsed recently and the Bank of Japan did not intervene promptly. There are one-sided expectations in the market about further depreciation of the yen, which has exacerbated the situation. These are lessons China can learn from [this].”
China needs a stable exchange rate with the dollar, both to be able to have stable exports, but also to avoid importing inflation in the event of devaluation against the US currency. So now the PBOC, after the BoJ, is starting to worry about the exchange rate with the dollar.
the sale of American government bonds in an attempt to revalue the Yuan risks being a counterproductive move, because it leads to an increase in interest rates on the dollar on the market, and therefore Beijing cannot think of pouring large quantities of bonds onto the market USA, just as Tokyo cannot do it.
The best response would be to strengthen the bilateral trade surplus with Washington, but this requires the absence of a trade conflict which, unfortunately, appears creeping at the moment.
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The article The Chinese Central Bank worried about the Yuan, too weak against the USD comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-banca-centrale-cinese-preoccupata-per-lo-yuan-troppo-debole-nei-confronti-dello-usd/ on Sat, 29 Jun 2024 08:00:40 +0000.