- State-owned banks of the PRC began to actively sell US dollars.
- They have also restricted lending to reduce liquidity in the offshore foreign exchange market.
- These measures are aimed at supporting China's national currency.
China's largest state-owned banks have taken measures to support the yuan. According to Reutersthey limited lending on the offshore foreign exchange market and began to actively sell US dollars.
Banks took this step to stop the fall of the yuan amid a decline in Chinese shares, which are listed in the national currency on stock exchanges in Shanghai and Shenzhen.
At the end of trading on Monday, January 22, the Shanghai Composite Index hit a new minimum in almost four years, while the intraday fall was the largest since April 2022.
“This is a clear political signal about the need to stabilize the yuan and counteract negative market sentiment,” — said Gary Ng, senior Asia-Pacific economist at Natixis bank.
One of the interlocutors noted the aggressive nature of sales of US dollars, which Chinese banks began to carry out. In addition, they have reduced the liquidity of offshore yuan and increased the cost of short selling the domestic currency.
In addition, state banks sold dollars on the domestic foreign exchange market in order to “protect” the level of 7.2 per dollar. The source clarified that financial organizations often act on behalf of the central bank of China. Meanwhile, they can also trade on their own behalf.
At the time of writing, the exchange rate of China's national currency had fallen to 7.169 per dollar, according to Bloomberg. The absolute minimum was set in February 2022, when the yuan fell to 6.32 per dollar.
Let us recall that in January 2023, China introduced payments in digital yuan (e-CNY) for trading on the securities market. In addition, the Chinese social platform WeChat has integrated this currency.