China’s yuan is near record lows against the dollar despite central bank warnings

Hong Kong
CNN business

Chinese Yuan Major currencies around the world continue to fall after aggressive hikes by the Federal Reserve.

The yuan — also known as the renminbi — has been falling for months despite intervention by China’s central bank.

The offshore yuan — traded overseas — hit a low of 7.2674 on Wednesday morning before rebounding slightly later, according to Refinitiv, which has data dating back to 2010. On Thursday, it fell to 7.189 per dollar.

Despite the decline in the People’s Bank of China warned traders on Wednesday not to bet on the continuous depreciation of the currency.

The onshore yuan, which trades in a tightly controlled domestic market, rebounded slightly on Thursday after falling to its weakest level since the 2008 global financial crisis. It rose 0.06% to 7.195 per dollar.

The PBOC, meanwhile, urged traders to “not stay in the game”.

“The foreign market is a big thing. Maintaining stability is the first priority,” the PBOC said in a statement posted on its website on Wednesday. “The People’s Bank of China has accumulated rich experience in dealing with external shocks [to the yuan market] and can effectively manage market expectations.’

The Chinese yuan, along with other major world currencies, has weakened rapidly against the dollar in recent months. The greenback rose to a two-decade high on Wednesday against a basket of major counterparts, boosted by the Fed’s policy tightening.

This year, the yuan has fallen more than 13% against the dollar since 1994, when China devalued the yuan 33% as part of market reforms, on track for its worst year since 1994.

The rapid devaluation of the currency could create new headaches for Beijing, as it could increase capital flight.

It can also complicate the efforts of politicians to stimulate the economy by lowering interest rates. China has eased its monetary policy this year, facing a global tightening the trend to strengthen its economy, which is being hit by the Covid lockdowns and the deepening real estate crisis.

“We see today’s statement as further evidence of the PBOC’s concern about the currency’s rapid depreciation,” Goldman Sachs analysts said in a research note on Wednesday.

However, they also noted that the PBOC may not defend a certain level of the yuan’s exchange rate, given that the depreciation was encouraged. As a result of the broad strengthening of the US dollar.

Pedestrians walk past a currency exchange shop in Hong Kong.

But overall, capital outflow risks are manageable, as China’s capital controls have been tightened since 2016, they said.

“China still has a large amount of foreign exchange reserves and banks’ net foreign assets, accumulated from strong inflow pressures from mid-2020 to 2021, which may also serve as an outflow buffer,” they added.