Aug 25, 2023 - Economy & Business

China has snuffed out its currency sell-off for now

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

China seems to have stabilized its currency.

Why it matters: The recent weakness in China's currency, officially known as the renminbi, reflected markets' growing concerns about the outlook for Chinese economic growth.

The latest: Recent days have seen concerted efforts to support the currency, in the form of interventions by China's central bank and seemingly coordinated efforts by large Chinese banks.

  • These efforts appear to have put a floor under the renminbi, at around 7.20 to the dollar.

Between the lines: Beijing seems intent on avoiding a repeat of the panicky sell-off in the currency back in 2015, which snowballed into a massive outflow of capital and caused the People's Bank of China (PBOC) to sell something on the order of $1 trillion in exchange reserves to put a stop to the nosedive.

  • Be smart: To strengthen their currencies, central banks intervene in the markets by selling other currencies, typically dollars. This increases the supply of dollars in the market relative to their own currency, thus increasing its relative value against the greenback.

What they're saying: "Given the PBOC's preference and the ample tools at their disposal, we expect the pace of CNY weakening to continue to moderate," Goldman Sachs analysts wrote in a research note on Thursday.

What to watch: While policymakers in China seem to have succeeded in propping up the currency, the fundamental issues facing the economy — a wobbling housing market, a rickety financial system, and a significant shift in government priorities — are still out there.

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