China’s central bank is initiating tighter controls when it comes to bulk dollar buys by local companies. This news, according to Reuters sources, follows the continued depreciation of Chinese currency in present market climes.
China bringing bulk dollar purchases under the microscope
According to the report, any business wanting to purchase $50 million or more, must now first obtain approval from the People’s Bank of China (PBOC). This decision comes after the institution had a meeting with some of the commercial banks over the weekend.
During this year, the Chinese yuan decreased by approximately 6% against the U.S. dollar, a decline last experienced in the 2008 global financial crisis. Indications are that the yuan will bow the knee even further to the dollar and weaken beyond the 7.5 per dollar mark.
To date, the PBOC has not offered a statement to either confirm or deny these speculations. China has however made various efforts to decelerate this downtrend, including setting stronger midpoint fixings.
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Earlier in September, the country stated it plans to increase the supply of dollars by decreasing the amount of foreign exchange banks are required to set aside. The Reuters sources also alleged that China’s financial regulators asked some banks to either reduce or halt purchases of U.S. dollars.
While these postulations flitted around in financial spheres, state-owned banks in China sold dollars in both local and foreign markets, trying to raise the yuan’s liquidity and the cost of shorting it. The country’s foreign exchange self-regulatory body confirmed that it would defend the yuan against overshooting and would do everything to prevent one-sided and pro-cyclical activities.
