China is trying to keep the yuan stable during this tariff war. They’re asking state banks to stop buying dollars and are tightening rules on how much customers can buy.
China Reportedly Issuing Dollar Purchase Guidance to Control Yuan Value Drop
In response to the escalating trade war with the United States, China is preparing a comprehensive strategy to counteract the impact of U.S. tariffs. As reported by Reuters, which received information from anonymous sources due to restrictions on public discourse regarding market matters, the People’s Bank of China (PBOC) has issued informal guidance to state banks. This directive instructs state banks to cease purchasing U.S. dollars and enhance scrutiny of private currency transactions to preserve the stability of the yuan.
Sources privy to the matter emphasize that China will refrain from resorting to a policy of devaluing the yuan as a means of mitigating the effects of the tariff-induced economic downturn. On Wednesday, state banks engaged in dollar-to-yuan exchanges to bolster the Chinese currency, which recently experienced significant depreciation, approaching multi-year lows.
While a mild devaluation of the yuan could enhance China’s competitiveness in global markets, a substantial devaluation would entail substantial monetary risks.
A policy advisor consulted by Reuters stated:
A sharp depreciation will not happen as that could hurt market confidence, but a modest depreciation will help exports. We should also assist key enterprises through subsidies, tax rebates, or market diversification.
In contrast, while President Trump recently indicated that China is exploring a trade agreement with his administration, this action suggests that China is preparing for a protracted trade conflict by safeguarding its currency.
On the other hand, Skybridge Capital founder Anthony Scaramucci predicts that the yuan will depreciate. He further asserts that China will not only devalue its currency but also sell its U.S. treasuries and intensify intellectual property theft. Maelstrom head Arthur Hayes elucidates that if the yuan devalues, it could catalyze a Bitcoin rally as capital flows out of China.
