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ITo counter increasing pressure on its domestic currency, the People’s Bank of China (PBOC) has reiterated its commitment to maintaining the stability of the yuan (RMB).

The PBOC will increase the purchase and sale of government bonds and create a sound liquidity environment for government bond issuance, CCTV quoted the bank as saying.

This announcement comes as China navigates economic challenges, including a muted post-pandemic recovery and tightening of external monetary policy, particularly by the US Federal Reserve.

Commitment to stability

The central bank stressed that it would use various tools to ensure an “appropriate and balanced” exchange rate for the yuan.

While the PBOC insisted that the yuan’s value would continue to be determined by market forces, it promised to intervene if necessary to prevent disorderly fluctuations.

This includes leveraging foreign exchange reserves and strengthening countercyclical measures.

“A stable yuan is essential to supporting economic recovery and maintaining investor confidence,” a PBOC spokesman said, adding that the central bank would closely monitor global market conditions and speculative behavior that could increase volatility.

The move comes as Peter Navarro, President-elect Donald Trump’s senior trade adviser, warned China against manipulating its currency.

But the Chinese embassy in Washington dismissed the allegations as unfounded. “Navarro’s statements have no factual basis,” the embassy said. “China has reiterated on many occasions that it will not engage in competitive currency devaluation.”

Pressure on the yuan

The Yuan has come under pressure recently due to several factors:

• Strengthened US dollar: The Federal Reserve’s continued interest rate hikes have strengthened the dollar and put pressure on other currencies, including the yuan.
• Weaker domestic demand: China’s economic recovery has been slower than expected, with lower consumer spending and investment inflows than expected.
• Trade imbalances: Slowing global demand for Chinese goods has also contributed to devaluation concerns.

In response, the PBOC has stepped up efforts to restore confidence in the currency and curb speculative trading that could increase volatility.

Global implications

The PBOC’s focus on stabilizing the yuan is not just a domestic concern; it has a significant impact on global markets.

As one of the world’s most traded currencies, the yuan’s performance has implications for international trade and investment, particularly for emerging economies with close economic ties to China.

Analysts note that stabilizing the yuan is crucial to ensuring global financial stability, especially at a time when diverging monetary policies between major economies have created uncertainty.

“A stable yuan is important not only for China, but also for its trading partners and the entire global economy,” said an economist at a leading financial institution.

outlook

The PBOC’s renewed pledge to stabilize the yuan is expected to boost confidence among companies and investors at home and abroad.

But experts warn that external pressures such as ongoing geopolitical tensions and sluggish global growth could threaten these stabilization efforts.

As China continues to implement policies to revitalize its economy, the yuan’s performance will continue to be a focal point for policymakers, investors and market observers worldwide.

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