How Chinese regulators talked markets out of a run on the yuan

China stabilises yuan by orchestrating buying by state banks & giving market guidance to bankers, preventing a destabilising yuan slide & chilling FX market.

In recent months, China has sought to stabilise the yuan by orchestrating buying by state banks and giving market guidance to bankers. The strategy of moral suasion marks a sharp break from Beijing’s approach the last time the currency was on the ropes, in 2015.

Back then, the People’s Bank of China (PBOC) resorted to official intervention as the central bank burned $1 trillion in reserves to shore it up.

This year, as China’s economy wobbled and money left the country, the PBOC took a starkly different approach, defending the currency by signalling to markets what kind of selling it would and would not tolerate.

Interviews with 28 market participants show at least two dozen cases where regulators closely and frequently steered market participants through a range of co-ordinated actions this year to resist strong downward pressure on the yuan.

The PBOC and State Administration of Foreign Exchange, the currency regulator, did not respond to Reuters’ faxed questions about its approach. PBOC Governor Pan Gongsheng has previously said regulators would prevent exchange rate overshooting risks and maintain stable FX market operations.

The strategy, market participants and analysts described to Reuters, has prevented a destabilising yuan slide.

However, they told Reuters that it has also chilled large parts of China’s foreign exchange market, crashing trading volumes and raising questions about the yuan’s chances of becoming a global reserve currency.