Emre Yumlu 
At a time when global trade tensions are escalating again, a remarkable step has come from the People’s Bank of China. The People’s Bank of China (PBOC) has sent instructions to major state-controlled banks to reduce their purchases of US dollars. The aim of this move is to limit the depreciation of the yuan and prevent sudden fluctuations in the exchange rate.
Pressure on the Chinese Yuan is Increasing
This decision was made after the Chinese currency, the yuan, has been under serious pressure recently. In particular, the high tariffs that the US has started to impose on Chinese goods and Beijing’s reactions to these have had a significant impact on financial markets. The yuan has started to lose value following these developments, and this has prompted the Chinese authorities to take action.
“Window Guidance” from the PBOC
Three different sources who provided information on the subject stated that the People’s Bank of China reached out to major state banks this week with a method called “window guidance”, which is an unofficial way of guiding the market. Within the scope of this guideline, banks were asked to limit dollar purchases made through proprietary accounts (transactions made by the bank for its own portfolio).
This type of window guidance is known as one of the ways the People’s Bank of China provides indirect control instead of directly intervening in the market. Such moves can have direct effects on foreign exchange reserves, exchange rate stability and general economic expectations.
Intervention in Foreign Exchange Markets?
This development can be interpreted as China’s attempt to indirectly intervene in the foreign exchange market. While the authorities want to prevent the yuan from losing value further, they may also be aiming to control capital flight. Because in large economies like China, exchange rate imbalances can seriously affect not only the domestic market but also global investor perception.
What Does It Mean?
This step by China is seen as a result of the US-China trade tension reflected in financial markets. Such measures show that China wants to maintain control over the exchange rate and is especially prepared for short-term speculative pressures.
Such policies are critical as limiting the yuan’s depreciation will affect not only import costs but also investor confidence. China’s tightening of its foreign exchange policies could lead to more volatility in Asian markets in the coming days.
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