FX.co ★ China’s state banks selling dollars to reinforce yuan

According to a Reuters report, China's major state-owned banks have embarked on a dollar-selling spree to bolster the yuan's exchange rate. In a strategic move, these major state banks of China have initiated operations in the currency market aimed at supporting the yuan's value and the stocks of local companies. Analysts have observed that the prices of the latter have hit multi-year lows. Currently, in an effort to save the national currency, a massive sell-off of the US dollar is underway. This has resulted in reduced liquidity of the offshore yuan, whose exchange rate is typically determined in the open market. As for the onshore yuan, its rate is controlled by the People's Bank of China (PBOC), and the Chinese authorities are working tirelessly to prevent a significant divergence between the two yuan rates. The agency noted that the recent dollar sell-offs were aggressive in nature. A crucial threshold was maintained, with the exchange rate not exceeding 7.2 yuan per US dollar. Notably, over the past few months, China's state banks have had to intervene several times to prevent the yuan from plummeting. A similar situation occurred in November 2023, when the Chinese currency strengthened significantly, reaching a local high. Experts believe the current scenario is linked to another downturn in the stock market. Many investors are dissatisfied with the measures taken by the Chinese authorities to stabilize the economy. Against this backdrop, there have been widespread sell-offs of Chinese securities. Consequently, the Hang Seng Index in Hong Kong plummeted by 2.4% in a day, hitting a nearly 20-year low, while the key CSI 300 index, reflecting the economic state of mainland China, fell by 1.6%.