China instructs central banks to reduce dollar buying
China’s central bank, the People’s Bank of China (PBOC), has instructed major state-owned banks to reduce their purchases of U.S. dollars.
This directive is part of an informal policy known as “window guidance,” where the PBOC has asked these banks to withhold dollar purchases for their proprietary accounts and to increase scrutiny on client dollar purchase orders.
The move is aimed at curbing speculative trading and slowing the depreciation of the yuan, which has lost about 1.3% of its value against the dollar this month, reaching 7.35 per dollar onshore, while the offshore yuan hit a record low.
This action comes amid escalating trade tensions with the U.S., particularly following significant tariffs imposed on Chinese exports, but the PBOC has signaled it will not resort to sharp yuan devaluation, prioritizing financial market stability instead.
Large state banks have also been observed selling dollars and buying yuan aggressively in the onshore market to support the currency.
