{"id":1650180,"date":"2022-09-21T04:05:12","date_gmt":"2022-09-21T08:05:12","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1650180"},"modified":"2022-09-21T04:06:09","modified_gmt":"2022-09-21T08:06:09","slug":"explainer-whats-inside-chinas-toolbox-to-rein-in-excess-yuan-weakness","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/explainer-whats-inside-chinas-toolbox-to-rein-in-excess-yuan-weakness\/","title":{"rendered":"Explainer-What\u2019s inside China\u2019s toolbox to rein in excess yuan weakness?"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">20<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fexplainer-whats-inside-chinas-toolbox-to-rein-in-excess-yuan-weakness%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1650180&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><p>SHANGHAI (Reuters) \u2013     China\u2019s yuan is facing renewed downward pressure, dragged lower by a surging U.S. dollar, a hawkish Federal Reserve and widening monetary policy divergence between the world\u2019s two largest economies.<\/p>\n<p>The yuan has lost about 4% to the dollar since mid-August to weaken past the psychologically important 7 per dollar level. The local currency also looks set for the biggest annual loss since 1994, when China unified official and market exchange rates.<\/p>\n<p>The rapid yuan declines prompted the People\u2019s Bank of China (PBOC) to lower the amount of foreign exchange financial institutions must hold as reserves to rein in weakness.<\/p>\n<p>WHAT ELSE HAS PBOC DONE SO FAR TO SLOW THE YUAN\u2019S DECLINE?<\/p>\n<p>The PBOC has been setting firmer-than-expected daily yuan midpoint fixings since late August to prevent excess yuan weakness, as the onshore spot yuan can only trade in a 2% narrow range around the midpoint. <\/p>\n<p>Market participants take any significant discrepancy between market projections of what the fix might be and where the PBOC actually sets it as an indication of which way the central bank wants to tug the market.<\/p>\n<p>Senior officials from the central bank and FX regulator have also ramped up efforts warning the market of strong one-way bets against the local currency through verbal messages.<\/p>\n<p>Wang Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE), was quoted by the state broadcaster CCTV last week urging companies not to speculate on the currency.<\/p>\n<p>WHAT OTHER OPTIONS DOES PBOC HAVE, OTHER THAN OUTRIGHT INTERVENTION?<\/p>\n<p>** HIGHER TRADING COST<\/p>\n<p>The PBOC could make it more expensive for financial institutions to short the yuan in derivatives markets, by raising their foreign exchange risk reserve ratio when purchasing dollars through forwards.<\/p>\n<p>The central bank has adjusted the risk reserve requirements multiple times over the past few years before it scrapped it in October 2020, when the yuan rose sharply.<\/p>\n<p>** TIGHTER OFFSHORE LIQUIDITY<\/p>\n<p>The central bank could issue yuan-denominated bills in Hong Kong to withdraw yuan from the offshore market and raise the cost of betting against the Chinese unit.<\/p>\n<p>\u201cThe Chinese authorities are leaving no doubt about their resolve to dampen depreciation pressure on the yuan,\u201d said Khoon Goh, head of Asia research at ANZ.<\/p>\n<p>\u201cIf depreciation pressure remains, the PBOC could raise the reserve requirement for forwards to 20%, or increase yuan bill issuance in Hong Kong to make it more expensive to short the offshore yuan.\u201d<\/p>\n<p>** COUNTER-CYCLICAL FACTOR IN YUAN\u2019S DAILY GUIDANCE FIX<\/p>\n<p>The PBOC first introduced the counter-cyclical factor to its daily midpoint fixing formula for the yuan-dollar exchange rate in 2017.<\/p>\n<p>The regulators said the factor was an effort to better reflect market supply and demand, lessen possible \u201cherd effects\u201d in the market and help the market focus more on macroeconomic fundamentals. The central bank adjusted the methodology a few times before suspending it in October 2020.<\/p>\n<p>\u201cWe do not expect an official restoration of the counter-cyclical adjustment factor in its daily fixing until the valuation of the CNY become much cheaper,\u201d Becky Liu, head of China macro strategy at Standard Chartered, said in an note published earlier this month.<\/p>\n<p>Liu expects the PBOC to further lower the FX reserve requirement ratio by another 200 basis points.<\/p>\n<p>The yuan has weakened nearly 10% against the dollar so far this year, but its value against major trading partners only fell about 0.7% year-to-date.<\/p>\n<p>** HIGHER CROSS-BORDER INFLOWS<\/p>\n<p>Regulators could adjust a parameter on cross-border corporate financing under its macroprudential assessments to limit domestic firms\u2019 ability to seek overseas funding.<\/p>\n<p>\u201cThe yuan exchange rate level itself is not the most important, the nature of the issue is whether China\u2019s cross-border capital flows remain stable,\u201d said Zhong Zhengsheng, chief economist at Ping An Securities.<\/p>\n<p> (Reporting by the Shanghai Newsroom; Editing by Vidya Ranganathan and Sam Holmes)<\/p>\n<p><a href=\"https:\/\/www.oann.com\/explainer-whats-inside-chinas-toolbox\/file-photo-chinese-yuan-banknotes-are-seen-in-this-illustration-3\/\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/09\/tagreuters.com2022binary_LYNXMPEI8K083-BASEIMAGE.jpg\" alt=\"tagreuters.com2022binary_LYNXMPEI8K083-BASEIMAGE\" \/><\/a><\/p>\n<p><a href=\"https:\/\/www.oann.com\/explainer-whats-inside-chinas-toolbox\/customers-are-served-at-a-counter-at-a-currency-exchange\/\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/09\/tagreuters.com2022binary_LYNXMPEI8K081-BASEIMAGE.jpg\" alt=\"tagreuters.com2022binary_LYNXMPEI8K081-BASEIMAGE\" \/><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>SHANGHAI (Reuters) \u2013 China\u2019s yuan is facing renewed downward pressure, dragged lower by a surging U.S. dollar, a hawkish Federal Reserve and widening monetary policy divergence between the world\u2019s two<\/p>\n","protected":false},"author":66,"featured_media":2315279,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1650180","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1650180","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/66"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1650180"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1650180\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/2315279"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1650180"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1650180"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1650180"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}