Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Chinese 100 yuan banknotes are counted at a branch of a commercial bank in Beijing in this March 30, 2016 file photo.

Reuters Photographer/Reuters

China’s central bank will use foreign exchange intervention and monetary policy tools to stop the yuan weakening past the key 7-per-dollar level in the near-term, three people familiar with the central bank’s thinking said.

“At present, rest assured they will certainly not let it break 7,” a source told Reuters. A defence of the 7 level could help boost confidence in the currency and soothe investor fears about a sharp depreciation in the yuan, or renminbi, even as souring trade relations with Washington make competitive devaluation a compelling option for Beijing.

“Breaking 7 is beneficial to China because it can reduce some of the effects of tariff increases, but the impact on our renminbi confidence is negative and funds will flow out,” the source said.

Story continues below advertisement

The yuan fell to its weakest level since December on Friday, and to within striking distance of the 7 mark last seen during the 2008 financial crisis.

It has weakened 3 per cent in the past month on fading hopes of a deal being struck in the long-running trade war between Beijing and Washington. The latest flare-up in those tensions saw U.S. President Donald Trump increase tariffs on Chinese imports, provoking a similar tariff rise from China.

Although a weaker yuan would support Chinese exporters, the decline would need to be significant to offset the impact of higher U.S. tariffs. Such a fall could in turn fuel capital flight and undermine China’s economic stability, policy insiders said. The source told Reuters that 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.

The PBOC did not immediately respond to Reuters’ request for comment on Friday.

A second source familiar with the PBOC’s thinking said the monetary authority might tolerate the yuan weakening to 7 on fundamental factors but would act to prevent speculative short-selling of the currency.


A stable currency is imperative for China as it seeks to balance its investment-driven economy, attract more portfolio inflows and push for global equity and bond index inclusions.

The tightly managed currency fell heavily in 2018 and, before that, in 2015 when the PBOC devalued the currency.

Story continues below advertisement

The stakes are much higher now, said Bryan Carter, head of emerging market fixed income at BNP Paribas Asset Management in London.

“A rapid devaluation would shake confidence in the local market and among domestic investors, proving counterproductive,” Carter said before Reuters reported source comments on PBOC. China’s balancing act goes beyond maintaining domestic confidence. As the country’s current account is seen swinging from a decades-long surplus toward a deficit, the yuan’s exchange rate is expected to become more volatile.

A majority of more than 12 money managers, traders and economists Reuters spoke over the past week expected PBOC to defend the renminbi.

While China primarily used direct dollar-selling intervention in 2015, it switched to more unconventional methods such as tightening yuan funding costs and using swaps as the currency fell in 2018.

The PBOC reintroduced a counter-cyclical factor, a secret component it uses in adjusting the daily reference point for the yuan’s trading band, in August last year. Market participants say it has been using that factor to temper depreciation expectations in the past week, by setting a firmer benchmark for yuan than implied by the moves of global currencies.

“I don’t believe we will rely on yuan depreciation to boost exports. The yuan is not only for facilitating foreign trade, but it could also affect capital flows,” one of the sources said.

Story continues below advertisement

“Barring any sharp rise in the dollar, the possibility for a near-term dip in the yuan below 7 is relatively small.”

Going against this thinking is market positioning, which points to further weakness.

In the offshore markets, the currency’s value one-year out had weakened to 6.9770 per dollar on Friday, slipping from 6.8482 a week ago just before Trump raised tariffs.

A sharp change in the risk-reversal measures in the yuan options market, which indicates the bias toward the currency, also showed investors were betting the currency will weaken.

However, even with these dynamics, there are firmer expectations the PBOC won’t tolerate a sharp selloff.

Liam Spillane, who manages $11.5 billion in emerging market debt for Aviva Investors, told Reuters he was positioning his portfolio “a little bit more” defensively following renewed escalation in the trade war.

Story continues below advertisement

As a result, Spillane has cut exposure in Indonesian government bonds and South African debt while adding small long dollar positions against the Turkish Lira and Taiwanese dollar. At the same time, he is “overweight” the renminbi.

“We’ve had a long-held belief that Chinese authorities will not allow the renminbi to materially depreciate. We firmly believe they won’t use the renminbi as a bargaining tool in the ongoing trade talks with the United States,” he said.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies