In response to escalating trade tensions with the United States, China's central bank, the People's Bank of China (PBOC), has instructed major state-owned banks to reduce their purchases of U.S. dollars. This move is part of a broader strategy to stabilize the yuan, which has faced significant downward pressure due to aggressive U.S. tariffs on Chinese exports.
The PBOC's directive, issued this week, advises banks to limit dollar purchases for their proprietary accounts and increase scrutiny when executing client dollar purchase orders. This measure is seen as an effort to curb speculative trading and maintain currency stability.
Large state banks have been actively selling dollars and buying yuan in the onshore spot market to slow the pace of yuan depreciation. The yuan has fallen approximately 1.3% this month and was trading at around 7.35 per dollar, while the offshore yuan briefly touched a record low overnight.
Despite the pressure from U.S. tariffs, the PBOC has ruled out significant yuan devaluation as a means to cushion the economic impact. Instead, officials suggest that modest depreciation could benefit exports, while sharp declines could undermine market confidence.
The central bank's actions reflect its commitment to maintaining financial market stability amid the ongoing trade conflict with the U.S., which has imposed tariffs of up to 104% on Chinese goods.
