Chinese banks actively sell USD to save the local currency

Reuters reported that China's state-owned banks are actively selling US dollars to buy yuan in both domestic and international markets.

"It's become normal for state-owned banks to sell dollars to slow down the yuan's decline," a Shanghai-based trader told Reuters. .

Whether selling dollars to customers or to themselves, state-owned banks often do so at the behest of the central bank whenever the yuan is under pressure.

Their overseas branch is also selling USD. This is to limit the decline of the yuan in the international market, and at the same time prevent the currency's price from being too different from the domestic price.

This month, the yuan has fallen 2.4% against the dollar. Since the beginning of the year, the decrease is 6%. This afternoon, the yuan price in China is 7.31 CNY per USD. The price in the international market is 7.34 CNY per USD.

The yuan fell due to the opposite monetary policy in China compared to the US, investors worried about weak growth in China and the risk of default in the real estate sector. The slowness of the country's authorities to stimulate the economy disappointed investors. China's central bank on August 15 announced a second interest rate cut in three months, further putting pressure on the yuan.

In recent weeks, observers have said that Chinese officials have sought to prevent the yuan from falling deeply. The PBOC sets a daily reference rate to help the yuan strengthen. State-owned banks also continuously sell USD.

Last month, the PBOC adjusted a regulation, allowing businesses to borrow more abroad. As a result, they can bring in more foreign currency to convert into domestic yuan. However, the high foreign loan interest makes businesses hesitate. Therefore, this policy is not very effective.

A more viable alternative, according to traders, is for state-owned banks to reduce yuan lending in the Hong Kong market. The liquidity squeeze here could help stop the yuan's decline this week.