In dire straits, China selling dollars offshore to save tanking yuan

China’s major state-owned banks Tuesday got down to selling dollars in offshore foreign exchanges, said a Reuters report, ostensibly in a bid to slow the nosediving yuan.

The Reuters report cited two sources who said the dollar selling appeared to have been triggered by yuan sliding below the “psychologically important” 7.25 per dollar level.

Sources told Reuters that this level for the yuan was dangerously low since it could send it into a tailspin to lows last seen in 2022.

The yuan’s value onshore hit a low of 7.3280 per dollar in November, “levels last seen during the 2008 global financial crisis, while the offshore yuan dropped to a record low of 7.3746,” Reuters said.

State banks usually act on behalf of the country’s central bank in the foreign exchange market, but they could also be trading on their own behalf or their clients.

The report also said that several currency traders had also witnessed this sale. “The (trading) desk saw strong selling in swaps across tenors in pre-market trade, likely sterilising spot intervention in the past few sessions,” Reuters cited a UBS note.

Hitherto this year, the yuan has already shed 4 per cent against the dollar, mainly owing to China’s sluggish and often uneven recovery after the pandemic. Also, the Federal Reserve has been constantly hiking interest rates.

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