How China talked markets out of a run on the yuan

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How China talked markets out of a run on the yuan

In the past few months, China has tried to keep the yuan stable by coordinating purchases by state banks and giving bankers advice on the market.

When the currency was in trouble in 2015, Beijing took a very different method than this one, which is based on making people feel better.

The People’s Bank of China (PBOC) stepped in at that time, burning $1 trillion in funds to protect the economy.

As China’s economy shook and money left the country this year, the PBOC did something very different to protect the currency: it told markets what kinds of selling it would and would not allow.

At least two dozen interviews with market participants show that regulators closely and often led market participants through a range of coordinated steps this year to keep the yuan from falling too far.

When Reuters sent a fax with questions about its method, the PBOC and the currency regulator, the State Administration of Foreign Exchange, did not answer. Pan Gongsheng, the director of the PBOC, has said in the past that regulators would stop exchange rate overshooting risks and keep the foreign exchange market stable.

The plan that market participants and analysts told Reuters stopped the yuan from falling, which would have been very bad for the economy.

Reuters was told that it has also cooled off big parts of China’s foreign exchange market, which has caused trading volumes to drop and raised doubts about the yuan’s potential to become a global reserve currency.

Eswar Prasad, a senior professor of international trade policy at Cornell University, said, “These days things are a lot more complicated because there are both domestic and global macroeconomic factors at play.”

His words showed that the PBOC’s “non-standard measures to intervene in foreign exchange markets” were a way to “triage” problems so that the yuan wouldn’t fall too quickly.

The value of the yuan affects the prices of things all over the world and the flow of trillions of dollars in capital. It is the currency of the world’s second-largest economy and biggest exporter. It also shows how tough things are for China.

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