China to Intervene With Forex, Monetary Policy to Stop Yuan Slide Against Dollar

China to Intervene With Forex, Monetary Policy to Stop Yuan Slide Against Dollar

TL;DR: Reuters reported the Peoples Bank of China (PBOC) will intervene with foreign exchange and monetary policy tools “to stop the yuan weakening past the key 7-per-dollar level in the near-term,” citing multiple sources. The revelation comes in the midst of an increasingly belligerent trade war with the United States, as tariffs are raised on both sides and speculative markets inevitably respond. Some cryptocurrency enthusiasts believe the entire affair could be a use-case boon for the ecosystem.    

China to Stop Yuan Slide Against Dollar

At least once source is sure the PBOC, the country’s central bank, won’t let the yuan break past 7 to the dollar, a confidence play against depreciation worries “even as souring trade relations with Washington make competitive devaluation a compelling option for Beijing.” It’s a careful balance, as dipping beyond that number would actually benefit the Chinese, reducing tariff stings. However, “the impact on our renminbi confidence is negative and funds will flow out,” Reuters quoted an unnamed source said to be close to the situation.

The renminbi is the official currency, with the yuan its basic unit of account often used as a general term to refer the currency generally, almost interchangeably … similar to that of the UK’s sterling and pound conventions. The last time the yuan rolled to 7 was in 2008, and just that thought alone becomes a psychological problem for investors. In the last quarter, it has faded some 3%, and most experts believe this is directly due to souring trade talks between the two economic superpowers. President Trump’s doubling down on tariffs recently, and China’s retaliation, has currency traders concerned about a protracted battle.

China to Intervene With Forex, Monetary Policy to Stop Yuan Slide Against Dollar

The trick of a weakened yuan is to overcome those tariffs without triggering capital flight, ultimately undermining what many consider to be a red-hot Chinese economy. “China’s issue of central bank bills in Hong Kong this week was a clear indication the People’s Bank of China’s wanted to soak up offshore yuan to discourage investors from short-selling it,” a source told Reuters, insisting the country’s monetary policy would not tolerate shorting of any kind.

Perhaps a mere coincidence, as traditional markets fell in the US, and more news emerged about China’s continued currency manipulation, cryptocurrency prices rose in some cases dramatically and across the board (at press time, there appears to be a correction). Enthusiasts have long maintained crypto can be an easier, more frictionless hedge against governments and their political whims.

DISCLOSURE: The author holds cryptocurrency as part of his financial portfolio, including BCH. 

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