Sep 12, 2023 - Economy

China warns traders on bets against yuan

Illustration of a Chinese 100 yuan bill with an unhappy Chairman Mao photo on the bill

Illustration: Sarah Grillo/Axios

China's central bank pushed back against traders betting on a continued drop in its currency, the yuan, on Monday.

Why it matters: While the fundamentals look poor for the yuan — weak trade, slow growth, low interest rates — government officials appear keen to keep the decline from becoming an embarrassing rout.

Background: The yuan last week slipped to its lowest level against the U.S. dollar since 2007.

  • The currency's weakness is a symptom of growing concern about the ability of China's struggling economy to regain momentum.
  • Betting against the yuan, essentially borrowing and then selling it to buy higher yielding investments in other currencies, has become a popular trade this year.

The latest: The People's Bank of China fired off a stern statement aimed at global currency traders after meeting on Monday with a PBOC-sponsored group of banks at the heart of foreign exchange trading in China.

  • "We will not hesitate on taking actions when necessary to firmly correct the one-sided and pro-cyclical market moves, to resolutely address the actions which disturb market order, and to unswervingly avoid the overshooting risks in the exchange rate," the PBOC said in its statement.
  • The central bank will now scrutinize large purchases of dollars, after a meeting with Chinese commercial banks over the weekend to discuss the issue, Reuters reports.
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