The People’s Bank of China To Maintain Yuan Level Below 7 Percent
China's central bank, formerly known as the People's Bank of China (PBOC) has announced plans to protect the Yuan from weakening against the US dollar. The announcement comes amid the ongoing China-U.S. trade wars.
The PBOC revealed that it would use a mix of monetary policy measures and foreign exchange intervention to keep the Yuan from weakening past the 7% level against the USD. Sources familiar with the PCOB's decision's told Reuters that the decision is part of China’s central bank’s plan to maintain the local currency at acceptable levels in the short-term.
"At present, rest assured they will certainly not let it break 7," the sources revealed.
Maintaining the Yuan within the seven levels will help maintain investor confidence while also easing their concerns about the currency's potential depreciation based on the current economic conditions. The trade standoff between China and the U.S. has been increasing pressure on the Chinese economy and particularly the Chinese currency whose chances of a devaluation has increased.
The anonymous sources also noted that China might benefit from breaking the 7% level because it might help ease some of the effects of the hiked tariffs. However, this would cause a negative impact on Yuan confidence, which will result in more funds flowing out of China's economy.
The PCOB also plans to implement necessary measures that will help strengthen macro conditions in light of the ongoing trade dispute. Pan Gongsheng, the deputy governor at the PCOB, expressed confidence in the central bank's capacity to maintain the Yuan's stability in the economic market.
The Yuan demonstrated strong performance against the US dollar for two decades from 1994 to 2014. However, the PCOB devalued the currency three times in 2015 to improve imports, to boost its economy. The devaluations allowed the US dollar to improve by 15% although it did not manage to break the 7% barrier, which means that the value of one US dollar still remained below 7 Yuan. China reportedly wants to maintain things that way by never allowing the U.S. to break that barrier.