Chinese banks have stepped up selling dollars to support the weakening yuan

Today, Chinese state-owned banks stepped up foreign exchange intervention to support the yuan. The sale of dollars on the local market is intended to strengthen the exchange rate, which has already fallen by 12% against the US currency since the beginning of the year. China’s major state-owned banks exchange yuan for dollars using currency swaps, and then sell the dollars on the local market.

Traders believe that such a measure can only have a short-term effect. “Such foreign exchange interventions usually do not bring results in the long term, but they will give an immediate short-term effect,” a trader in the Shanghai division of a Western investment bank told the FT. Another trader, on condition of anonymity, did not rule out that the activation of foreign exchange interventions to support the yuan could also be caused by political reasons – the 20th Congress of the Communist Party of China began in Beijing the day before.

The desire of the Chinese authorities to support the depreciating national currency became known at the end of September. Then Reuters, citing several sources reportedthat the People’s Bank of China told the country’s state banks to prepare to sell dollars and buy yuan.

Evgeniy Khvostik