Reminder of the difficult situation in which the PBoC finds itself in the face of the weakness of the yuan – it does not want to trigger a crash

Last January I published an article on the difficult situation in which the People’s Bank of China finds itself:

• the destabilizing dynamics of the CNY could tip a slow economic downturn into a financial collapse that triggers a crash.

This occurred against the backdrop of the PBoC withholding its stimulus measures, but the CNY’s goal of stability is also reflected in the Bank’s continued support for the currency. Today’s benchmark rate setting showed the largest deviation from the model estimate on record (dating back to 2018).

The People’s Bank of China shows no signs of letting the yuan devalue to anywhere near where it trades. In the short term, I think their determination is running out of steam. First, the PBoC is a black box, no one outside knows what’s going on there, and second, China has US dollar reserves to fight the battle (selling USD/CNY) for quite a while , long enough to at least fend off those speculating on a weaker yuan. I preempt all of this by saying that the market always wins in the end, but it could take years.

Offshore yuan trading: