Chinese government banks have increased their participation to protect the weak yuan; according to bank sources who spoke to Reuters, these banks sold significant amounts of US dollars and utilised a combination of agreements and immediate bodies.
According to six financial sources who spoke to Reuters, China followed a similar strategy in 2018 and 2019 in which the yuan was regarded as eating the US dollar in the future market and selling those dollars in the present.
The sale, according to sources with firsthand knowledge of market activity, aims to stabilise the yuan because the bacheters assist in the purchase of dollars in addition to setting the yuan’s price in futures contracts.
This year, the yuan has lost 11.6% of its value relative to the dollar, and on Monday, the dollar was exchanged for 7. 1980 yuan.
One of the sources pointed out that the size of the dollar sale was “somewhat huge”, and another source said, “The major banks want to achieve stability in the immediate market.
” Government banks are usually traded on behalf of the central bank in the foreign exchange market in China, but they can also trade for their own purposes or implement orders for their companies from companies.
In addition, by assisting government banks in purchasing dollars at a time when US revenue has surged, making dollars rare and expensive, this action aids the government.
It is interesting that during the yuan support reserve burn in 2015, China lost a trillion dollars, and the significant decrease in the official reserves drew a lot of criticism.
To preserve the value of the yuan, Chinese government banks trade dollars for goods and services.
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