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Chinese banks to start selling reserves to save renminbi

China’s public banks must prepare to bail out the renmimbi (or yuan). The warning was given by the People’s Bank of China.

The Chinese currency traded on the international (“offshore”) market has already fallen 12% against the dollar since the beginning of the year and the pressure on the pair continues to mount.

According to the decision to which Reuters had access, the central bank asked public banks with a presence abroad, including Hong Kong, New York and London, to prepare the sales of dollar and euro reserves in exchange for renminbi. Among the many weapons that are in the arsenal of central banks to manipulate the value of money is exactly this: the sale of foreign exchange, followed by the purchase of national currency, in order to give strength to money.

The devaluation of the renmimbi has been a reflection of the weakening of the Chinese economy. In addition, the dollar’s “rally” has penalized other currencies, such as the euro and the Chinese currency.

“The yuan’s fall has intensified in recent weeks. The ‘onshore’ yuan [negociado no mercado interno] fell to the lowest level since 2008, while the ‘offshore’ yuan reached historic lows”, according to analysts at BCA Research in a “research” note published this Thursday and quoted by the British agency.

“To a large extent, the weakness of the yuan reflects the general strength of the dollar, with the dollar index having gained 6.8% since the beginning of August”, explains the investment house, adding that also “the specific dynamics of China have weighed on on the currency that has lost strength against the euro, the dollar and the Canadian dollar”.

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The People’s Bank of China has one of the largest reserves in the world, with three billion dollars, and in recent weeks it has resorted to these to save the renmimbi.

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